Interests of Affected Parties are Taken into Consideration
In the discussions of the late 20th century, the capitalist economic model began to face questions regarding its legitimacy.
The view that a company’s responsibility lies solely in generating profits, championed by Milton Friedman (1998) as one of its most important advocates, is now being confronted with the idea that companies exist not only to create material wealth but also to promote the holistic development of human beings, as emphasized by Andres Genoud (2002).
The pressure for greater control and accountability of companies extends beyond the boundaries of complex and detailed government environmental regulations. It is also exerted by supranational institutions and multilateral organizations that issue voluntary socio-environmental guidelines, which have the potential to determine the success or failure of business activities.
The pressure exerted on companies is no longer restricted solely to the environmental sphere but includes demands for increased participation and social control in business operations, as well as the acquisition and maintenance of the Social License to Operate (SLO) by corporations.
The need to engage in dialogue with communities living in the areas where corporations operate, in order to understand their expectations, aspirations, and vocations, and to include their interests in corporate planning, is now regarded as a relevant management strategy.
Beyond compliance with laws
Claims for the improvement of environmental protection mechanisms and increased public participation in governmental decision-making bodies have emerged in Brazilian legislation for at least 30 years.
The Federal Constitution (CF) of 1988, in Article 225, expanded the concept of environmental defense by incorporating human and social aspects into environmental legislation.
Furthermore, the 1988 Federal Constitution guaranteed popular participation in the management of policies and programs promoted by the Federal Government.
However, strict compliance with conventional environmental licensing has proven insufficient for the survival of private businesses in current times.
International institutions and multilateral organizations have also developed their own socio-environmental guidelines to address global issues and have expanded the range of requirements that companies must comply with.
These guidelines should be minimally followed by companies subject to financing regulated by agents that adhere to supranational principles and performance standards. Additionally, companies that aim to survive in an increasingly demanding world, marked by the expectation for the adoption of sustainable practices by businesses, should also consider these guidelines, regardless of formal requirements.
Complying with these supranational guidelines facilitates the acquisition and maintenance of financing, attracts investors, and benefits corporate reputations.
Conversely, disregarding the framework of best socio-environmental practices and international benchmarks will increasingly be one of the factors responsible for investment failures.
That is what our experience has shown us.
Degree of maturity of corporate sustainability and stakeholder relationships analyzed together
The quality of the relationship with stakeholders, a concept proposed in 1985 by Robert Freeman to designate any group or individual that can affect or be affected by organizational objectives, is crucial for the adoption of sustainable practices by companies and the financial viability of enterprises. This is because the social, environmental, and economic pillars of the sustainability concept are inseparable.
This quality can be observed in conjunction with the classification of companies regarding their sustainability maturity.
The typology proposed by Simon Zadek in 2004 for the Stage of Sustainable Development of a Corporation is useful for the integrated view of social and environmental dimensions of sustainability.
In the most basic stage (“Defensive”) of Zadek’s typology, we find companies that deny practices, impacts, or responsibilities. At the highest level, in the fifth stage called “Social License,” companies not only adopt policies and procedures to comply with legislation (stage 2, “Obedience,” “Compliance”) but also incorporate sustainability issues into management processes (stage 3, “Managerial”) and integrate sustainability issues into business strategies (stage 4, “Strategic”).
From denial of socio-environmental obligations to sustainable corporate leadership.
In the current scenario we are experiencing, there is definitely no longer room for a regressive corporate stance of denying impactful practices and responsibilities towards society arising from a company’s operations, which is characteristic of stage one, “Defensive.”
In this phase, dialogue with stakeholders is either non-existent or one-sided.
The risks to the reputation and survival of companies are enormous.
Merely adopting policies and procedures to comply with national legal and regulatory environmental frameworks, falling under the second stage, “Obedience” or “Compliance,” also does not guarantee the longevity of enterprises.
In this stage, there are already initiatives for interaction with stakeholders, mostly reactive, with engagement focused on problems that companies do not yet have the capacity to address.
There are also risks to reputation and the health of enterprises in this stage.
The consideration of stakeholder interactions’ outcomes in decision-making processes strategically begins in the third stage, “Managerial,” which is characterized by the incorporation of sustainability issues into corporate management processes.
From this stage onwards, companies become capable of transforming stakeholder-related risks, initially negative, into real business leveraging opportunities.
Therefore, we are talking about the relevance of a business strategy that can evolve, in the medium and long term, to stage four, the “Strategic” stage, where sustainability is integrated into the business strategy.
In this stage, companies play a leading role in enabling the existence and maintenance of shared, systemic, and integrated relationships with all their stakeholders.
There is the generation of shared value with communities, resulting from the quality of social interactions.
As for the fifth and final stage, “Social Leadership,” it must be said that only a few companies are capable of, after institutionalizing sustainability and stakeholder relationship management, disseminating their organizational learning to areas outside the organizations, influencing the adoption of sustainable development practices by new players.
Way beyond mere neighbors
The survival of companies does not depend solely on compliance with environmental regulations established by law and voluntary or mandatory adherence to supranational recommendations concerning the environment.
Social expectations for greater corporate contributions to addressing challenges that cannot be tackled solely by government efforts, such as poverty eradication, are growing.
The most recent revision of the Global Reporting Initiative (GRI) standards, an organization that promotes sustainable reporting by companies, which in turn is used for granting credits and enhancing brand reputation, has established the proven need for structured consultations with stakeholders in its recommended guidelines for companies.
The demands for increased social participation and control, which have gained momentum in the current Brazilian federal government, are also becoming increasingly relevant to private companies, knocking at the door of the territories where their activities are conducted.
The behavior of companies in response to these interests can create negative risks or opportunities for their operations and future investments.
It all depends on how the enterprises will engage with their stakeholders.
The true social legitimacy of an enterprise’s operations (Social License to Operate – SLO) fundamentally depends on the level of trust its various publics have in its operations.
This trust is primarily a result of:
1. The effective degree of social participation throughout the operation of the enterprises.
2. The outcomes of the partnerships that are formed.
3. The social and environmental effectiveness of the mitigating and compensatory actions for the generated impacts, as well as the investments made for the development of the territories, regardless of environmental compliance.
Far beyond promises of a better future
Gaining the trust of stakeholders in the actions of organizations is crucial.
If a company fails to solidify its positive image among the stakeholders in the territory, it will not be given the benefit of the doubt in times of crisis and unforeseen events that challenge the company’s performance.
When relationships with stakeholders are marked by mistrust, the company’s roof will be permanently made of glass, susceptible to stones thrown through information technologies and digital media.
Its reputation could be ruined, with serious implications for the attractiveness of its investments.
The experience of Ferreira Rocha demonstrates that the trust of stakeholders in companies can be achieved through two main strategies:
1. The first strategy is characterized by “doing for” stakeholders, which means enchanting them by creating expectations of a better future, for example, through the implementation of a project in a certain region.
This technique is primarily focused on achieving short-term organizational goals more easily, in less time, and without the need for mature relationships with these actors;
2. The second strategy involves establishing cooperative relationships based on more democratic principles, giving effective voice to stakeholders and considering their participation in the decision-making processes of the company.
This means identifying, communicating, negotiating, motivating, and forming strategic partnerships, taking into account the interests of these actors and the history of the territory they represent.
It is about “doing with.”
Both strategies can be successfully employed at different stages of an operation.
Often, they are used alternately throughout the lifespan of the project.
However, the cooperative strategy offers several advantages over the one that creates expectations through promises, particularly in the medium and long term.
Indeed, there are several factors that can lead to the failure to fulfill promises.
This situation can result in the inadvertent practice of social washing, which is characterized by the presentation, in theory, of actions and behaviors by companies that are not substantiated in practice.
The failure to deliver on promises poses a threat to the establishment of trust with communities and is decisive in the loss of support when, for example, the benefits from individual compensations start to diminish.
In addition, it brings about social difficulties for the next steps of environmental licensing, such as the generation of unforeseen costs and widespread attacks on corporate image.
The non-fulfillment of promises of enchantment can also lead to frustration of stakeholder expectations, giving rise to social conflicts throughout the operation, compromising the stability of companies.
Moreover, as revealed by various cases in the energy and mining sectors, the achievement of short-term goals can also be facilitated through the use of participatory dialogue methodologies and the formation of local and regional partnerships, initially beneficial for both parties.
Unlike “doing for,” “doing with” has the ability to:
– Elevate the level of social legitimacy towards that of trust in a “win-win” relationship.
– Prevent negative risks.
– Increase the chances of seizing new business opportunities that may arise within or outside the territory, thanks to institutional learning made possible by the choice of dialogue and social participation strategies.
Our strategic axis and derived solutions

 
The general guidelines for the development and implementation of Stakeholder Relationship Strategic Plans (SRSP) are well-known and applied by various companies and professionals dedicated to the subject.
Typically, SRSP follows the “Plan – Develop – Control – Analyze (PDCA)” model and consists of the following activities:
·        Plan: Map stakeholders and social conflicts based on the analysis of documents related to the territory and the environmental licensing process associated with the intended or existing project(s) in that area.
·        Develop: Implement the SRSP according to the methodologies and interaction tools established within it.
·        Control: Monitor the progress of the SRSP through the use of indicators.
·        Analyze: Critically evaluate the SRSP based on the results from indicators and the mechanisms of interaction with stakeholders, making any necessary course corrections.
We, at Ferreira Rocha, also follow this methodology in terms of macro steps.
However, we strive to differentiate ourselves by adapting these steps to better serve the objectives and goals of our clients, always with a consistent underlying principle: strategic management of negative risks and opportunities associated with stakeholder engagement.
Thus, we have developed the following solutions:
– Analysis of current scenarios and trends in stakeholder relationships for the evaluation of new investments;
– Social pre-diagnosis;
– Development of local development plans based on stakeholder perception;
– Establishment and feedback of performance and social effectiveness indicators.
Throughout the months of May and June, on our digital platforms, we will present the major methodological principles that guide our work in stakeholder engagement, primarily based on the “doing with” strategy.
We will also address each of these solutions related to stakeholder relationship management, as well as highlight the key cases that we have already developed and/or are currently working on in this area.
Best regards,
Delfim Rocha
Chief Executive Officer
Ferreira Rocha Advisory and socio-environmental Services