Assessing the state of stakeholder relationships:
The Stakeholder 360

Mining projects are located in socio-political networks of relationships among the company’s stakeholders. This article describes commonly encountered business risks associated with the mismanagement of those relationships at different stages in the life cycle of a mine. We argue that understanding the structure of the network and the levels of social capital in the relationships that link stakeholders is essential for avoiding such risks and for maintaining a social licence to operate. Practical management tools for acquiring such an understanding have been lacking until now. However, a socio-political measurement system known as the Stakeholder 360 was recently developed to help managers gain that understanding at an actionable level of detail. Examples from a Stakeholder 360 pilot study in Papua New Guinea (PNG) demonstrate how it can provide practical guidance in stakeholder relationship management. Because it graphs the patterns of social capital in the community, it can also guide efforts at community economic development and thereby build the company’s reputation as a preferred guest in other communities in the future. That, in turn, gives the company broader access to financing and investment.

In 1989, on an evening steaming with tropical humidity, an Australian anthropologist slipped into a crowded meeting hall in a town on Bougainville Island, PNG.  The anthropologist had been asked by the local mining company to investigate reports of unrest among native landowners.  There were heated discussions on every side.  People were agitated.  The anthropologist stood at the back of the hall, trying to remain inconspicuous as the only white man in the room.  The charismatic speaker, Francis Ona, took the stage.  With a litany of injustices perpetrated by the mining company and the national government, Ona brought emotions to a boil.  Then, Ona spotted a visible target for the crowd’s outrage.  He pointed to the anthropologist at the back of the room and shouted, "That man is a spy for the mining company!"  The anthropologist saw hundreds of faces turn in his direction.  Many in the crowd were armed.  In a flash, he decided that his research was done.  He bounded, like a kangaroo, out the door and down the road to his truck – and lived to tell the story. 

Francis Ona went on to lead an insurrection in which he and his forces seized the mine and declared the independence of the province of Bougainville Island from PNG.  It was one of the more violent episodes of opposition to mining in recent history.  In many other places around the world, mining companies have been stopped by non-violent opposition. In Peru , for example, at least seventeen mining and mineral exploration projects were stalled by conflict with local communities in July 2002. [1]  Socio-political opposition translates into bottom line costs large enough to bankrupt smaller companies.

RISKS OF IGNORING RELATIONSHIP NETWORKS

If the Bougainville mine management had known more about the social network among various groups on the island, they could have taken steps to reduce the tensions and emotions that led to the local people forming a hostile coalition.  In more general terms, every society has anti-development, anti-change, and anti-outsider factions.  These factions compete for the loyalty and support of as many additional neutral groups as possible.  When they all have sufficient motivation to join forces, they pose a risk to any international company in the community, particularly when the neutral groups also have unaddressed questions and concerns about the development.  They may worry about how fairly the benefits of development will be distributed.  Sometimes they simply feel threatened by the arrival of outsiders who may not respect their traditions.

Too often company management sees no need to "waste time" getting to know the socio-political dynamics among community groups because they assume that the economic benefits that the project will bring will far outweigh the costs.  Therefore, they ask, "Who in their right mind could object?"  Of course, history has answered that rhetorical question repeatedly.  In remote underdeveloped communities, jobs and money can bring all manner of social problems from housing shortages and land conflicts to alcohol abuse and prostitution.  Companies invite blame for all those problems when they rely solely on their legal rights to impose a project on a community.  However, when a company understands enough about the various stakeholder organisations’ interests and their relationships with one another, it can negotiate more acceptable paths to change and thereby share the responsibility for its consequences with the community itself.

Understanding the network of relationships in a community is essential for avoiding the frequent problem of exacerbating social divisions.  Often quite unintentionally, a company’s impact on the social network creates turmoil that often escalates to the point of conflict.  The most common situation arises when the company communicates with only one faction in the community, usually the group that is friendly towards the project.  Alternatively, a "gatekeeper" situation may exist in which the company communicates with a dominant group of leaders who do not pass on information to their base or to other sub-groups.  A similar situation can occur when the community is riven with factions who do not share information with one another and who compete for power or for the attention of the company.  In all of these situations, there is a risk of marginalising groups.  They are left out of collaborative initiatives with the company and do not get accurate information.  That leads to fear, rejection, resentment, and an inevitable backlash.

Maintaining open and trusting relationships with communities affected by resource developments has been described as maintaining a "social licence to operate". [2]  If a company has its social licence to operate withdrawn at one site, its international reputation suffers.  As a result, it often faces increased hurdles and barriers in the next community it wants to enter.  There is a growing body of evidence that a company’s financial performance is significantly affected by its reputation, [3] and how well it treats its various stakeholders. [4]  Therefore, global resource companies can be more successful if they find and use the management tools they need to build better relationships with local stakeholders. [5] 

Within the mining industry, companies are coming forward with policies and operating procedures that emphasise engagement with stakeholders based on principles of respect, and on open, transparent communications and consultation.  They strive for the mitigation of social impacts, enhancement of social and economic benefits, and participation in community development.  All of these help create a social licence to operate.

Nevertheless, mining companies often have difficulty building relationships.  Most often this arises from the belief that building social infrastructure (schools, hospitals, etc.) will build good relationships.  Companies have a strong tendency to invest preferentially in infrastructure because, unlike relationships, infrastructure is tangible, familiar, and easily managed. [6]  This preference for infrastructure tends to lead to paternalism and dependency, and is not likely on its own to create strong, collaborative, trusting relationships.  A more holistic approach is required to earn a lasting, stable social licence to operate. 

PROJECTS AND RELATIONSHIPS BOTH HAVE LIFE CYCLES

For the mining company, it is important to understand that social networks (a) exist in a community before they arrive, (b) will be modified as the presence of the company stimulates new linkages and causes old linkages to fall into disuse, and (c) will continue after the mine is gone.  The mining project, even a short exploration programme, will interact with these networks.  The most appropriate type of relationship can vary throughout the life cycle of mine.  There are essentially three different phases to consider: exploration, operation of the mine, and post closure.  Each has its own dynamic. 

Exploration is a phase of high risk and uncertainty in which most projects fail; expectations are created and tensions may develop between pro-mining and anti-mining factions in the community.  As exploration advances and a project becomes more certain, the operating company must start developing its own relationships with community organisations.  All the while, the possibility that no mine will be built remains strong until feasibility is established and permits are obtained.  In this environment, the company must manage its relationships with stakeholders for two potential outcomes – planing for success and establishment of a mine, and preparing for failure and the need to withdraw.

The operating years of the mine represent a period of relative stability and continuity during which relationships become established and mature.  For the company, there is need to understand the evolving networks of relationships and ensure that all stakeholders are comfortable with the presence of the mine.  A recurrent problem is for managers to think of their projects as the centre of all activity and thought.  They tend to see relationships arranged radially around the project.  This denies the reality as experienced by the community, which had many functioning relationships outside the project before the it arrived, and will continue to have them.  It is important for project proponents to understand these relationships, and see the mine as one node in a more complex network of relationships.  By working to strengthen social capital and enhance the existing relationships, the risk of creating problems of paternalism and dependency are much reduced.

All mines eventually close.  Upon closure, the relationship will end, or at least change profoundly.  Preparations for that day should begin before the mine opens.  The fine line that a company has to tread runs between not having enough of a relationship with the stakeholders to be able to help them benefit from the presence of the mine, on the one hand, and, on the other hand, having too close a relationship that breeds dependence on the mining company.  As closure nears, it is particularly important for stakeholder organisations that have worked closely with the company to consider how socially isolated versus connected they will be with the rest of the community when the company leaves.  Ending relationships smoothly can be even more challenging than starting them. 

At all stages of the mineral extraction process, companies need a relationship building tool that will do two things.  First, it must identify the company’s most important stakeholders and indicate how well those relationships are going.  Second, it must give managers an overview of the social network of relationships among the stakeholders themselves.  If the mining company on Bougainville Island had had such a tool, they would have understood much earlier the dangers they faced. 

ASSESSING THE STATE OF STAKEHOLDER RELATIONSHIPS

In the last two years, management researchers at Simon Fraser University (SFU) in Vancouver have been developing a stakeholder relationship assessment tool that aims to directly meet the needs of managers in the mining industry.  Known as the "Stakeholder 360", the instrument is a survey and dialogue process that eliminates much of the guesswork in developing and maintaining the appropriate co-operative relationships with community stakeholders. 

The thinking behind the Stakeholder 360 is that what people believe determines what they will do.  For example, if stakeholders believe a company will harm them, they will be defensive and hostile towards the company.  However, what people believe depends on who they talk to, and who they trust.  In other words, perceptions of social reality are constructed in social relationships.  Company managers can either be included in the social reality construction process that stakeholders go through, or they can be left out. 

If managers want their information and values to influence how stakeholders construct social reality, then they have to develop the right kind of relationships with those stakeholders.  The three most important qualities to have in these relationships [7] can be summarised as ‘the three T's’: talking, trusting, thinking.  The managers and stakeholders should communicate openly (talking), trust each other (trusting), and share common views of the present situation and goals for the future (thinking).  The Stakeholder 360 measures the three T's.

The three T's have been grouped together under the umbrella concept known as ‘social capital’ .  In their management bestseller, In Good Company: How Social Capital Makes Organizations Work, [8] Don Cohen and Lawrence Prusak define social capital as follows:

"Social capital consists of the stock of active connections among people: the trust, mutual understanding, and shared values and behaviors that bind the members of human networks and communities and make cooperative action possible" (p. 3 - 4)

In assessing the relationship between a company and a stakeholder group, the Stakeholder 360 collects perceptions from representatives of both organisations.  Most of the question are asked in a way that obtains a numeric answer (e.g., rating).  The mutual perceptions are then merged into a score for the relationship itself. 

Mapping the social networks in a community would take too much time if every single individual were taken as a node in the network.  To avoid that problem, the Stakeholder 360 assumes that the leaders of stakeholder organisations and groups are likely to be opinion leaders for their memberships.  The level of analysis is the group rather than the individual. 

There are always some leaders of stakeholder organisations who are not opinion leaders.  Some may simply repeat the opinions of the real opinion leaders who are not part of their organisation’s formal leadership structure.  That would not be a problem for the Stakeholder 360 because the opinions surveyed would be the opinions sought.  Some organisation leaders, however, might have such low legitimacy with their members that they neither reflect nor influence the members' opinions.  Such leaders can be difficult to identify in a single round of interviews, but with repeated surveys every six to twelve months, the problem soon becomes apparent.  In order to help detect low legitimacy leaders, the Stakeholder 360 survey aims for interviews with at least two or three leaders from each organisation.  For example, the opinion of the local church might be the average of the opinions of the Pastor, the president of the women's fellowship group, and the choirmaster.  If scheduling permits, the ideal situation is to have all three of them sit down together and agree on their organisation’s response to every question.

The Stakeholder 360 deliberately excludes unorganised aggregates of people like those who are left handed, or those who have red hair, or those who are women, unless those aggregates form themselves into an organisation of some sort.  The group need not be legally registered organisation so long as it does have at least an informal, internally recognised leadership structure.  Therefore, clans, tribes, and cult groups would all qualify as stakeholder groups. 

In a town and it environs, there typically might be from ten to thirty groups and organisations.  Since this is a small population, the survey is a census, not a sample.  Therefore, the number of interviews would number in the dozens, as opposed to the hundreds needed for a random sample survey of population of thousands of individuals. 

SOCIOGRAMS: MAPS OF NETWORKS

In the interviews, stakeholder representatives are asked about their organisation's links with other organisations and with the company.  Graphing the links among the organisations produces a socio-political map, known as a "sociogram".  Figure 1 shows a sociogram based on hypothetical data. 

A great deal of information can be deduced from the patterns of linkages among organisations.  For example, in Figure 1, the organisations numbered from 1 to 6 all have links with one another.  This type of pattern is called "bonding". [9] [10] [11]   These half dozen organisations would likely have similar views and be capable of high levels of co-operation on complex tasks. 

By contrast, the organisations numbered from 9 to 15 each have only one link with any other organisation.  They all link to organisation 8.  Number 8 is said to be high in "centrality". [12]  High centrality nodes in a social network tend to have more influence than those with fewer links.  However, if a situation arose where organisations 8 to 15 had to co-operate, they would soon discover an information flow bottleneck at organisation 8.  This "hub and spokes" structure tends to create a leader-follower pattern of interaction, rather than co-operative interaction.

Figure 1: Hypothetical Sociogram of a Community Network

Organisation number 7 exemplifies the phenomenon of "bridging".  With only two links, number 7 would be most likely to have access to the greatest variety of information.  Organisations 1 to 6 each have more links than number 7, but the information that travels on those links is largely redundant.  Number 5 would likely be the leader of the bonded group because that organisation has one more link and has the greatest access to non-redundant information. 

If organisation 8 were Francis Ona's group, and organisations 1 through 6 were various departments of the mining company, then the company would be quite isolated and much too dependent on organisation 7.  The sociogram would make it obvious that the company needed to establish positive links with organisations 9 through 15.

THE STAKEHOLDER 360 IN PNG

The Stakeholder 360 was first piloted in a developing country, PNew. [13]  The cultural differences between the global company, Placer Dome International, and the community, Misima Island, put the Stakeholder 360 to a rigorous test. 

The University of Papua New Guinea (UPNG) and Simon Fraser University collaborated to interview approximately 50 representatives from nearly 15 to 20 stakeholder organisations at six to twelve month intervals beginning in April 2001.  The interviews were conducted in both the English and Misiman languages by fourth year students from UPNG, under the supervision of Dr. Albert Mellam, Dean of Business Administration. 

The interview asked stakeholders about their visions for the future of their community, current realities, and priorities for action.  When the data has been collected and analysed, the dialogue part of the Stakeholder 360 process began.  The company convened its Sustainability Planning Advisory Committee (SPAC) in a session facilitated by the SFU researchers.  SPAC consisted of representatives from landowning clans, churches, all four levels of government, and NGOs from the local, national and international level.  The session explored common elements of future visions and ended with agreement on a list action priorities.  The effect of the dialogue session was a general increase in social capital among the stakeholder organisations themselves.

A Stakeholder 360 survey conducted six months later revealed that most stakeholder organisations had developed a clearer view of how the mine closure would affect them, a more strategic set of goals for adjusting to the closure, a lower perceived dependence on the mining company, and a higher perceived level of agreement between their organisation and the mining company.

The Stakeholder 360 interviews included questions about the importance of various relationships to each party in terms of how much was at stake and how dependent they perceived themselves to be on the other party's co-operation.  The company's ratings of the importance of each relationship were paired with the jointly rated levels of social capital in the relationship.  These pairs were graphed as X and Y co-ordinates on a scattergram.  Ideally, unimportant relationships would fall in the range of low social capital and highly important relationship would be paired with high social capital scores.  Most relationships did fall on that diagonal.  There were three, however, which scored high on importance for the company but low on social capital.  These were flagged as relationships the company should try to improve.

Because the Stakeholder 360 built the social capital scores out of ratings on the three dimensions of social capital (i.e., talking, trusting, thinking), it was possible to diagnose the specific type of problems in each relationship and make appropriate recommendations.  One relationship was low on the talking dimension.  The company was able to develop better communication procedures to keep that stakeholder apprised of decisions more quickly.  Another relationship was low on the thinking dimension.  The company had its expert employees spend more time helping that stakeholder accomplish a task it had never tackled before.  The third relationship was low on the trusting dimension of social capital.  The company offered to discuss the creation of institutional structures that would insure against the misappropriation of funds for community projects. 

Six months later, two of the three relationships had social capital scores that had risen to be appropriate for the importance of the relationship.  The relationship that was originally low in trust remained that way and that stakeholder became slightly more isolated in the community social network.

USING NETWORK KNOWLEDGE TO PROMOTE COMMUNITY DEVELOPMENT

Because the Stakeholder 360 measures the social capital in both the relationships between each stakeholder and the company and in the relationships among stakeholders themselves, it can give companies the information they need to make their presence a win-win situation for both themselves and the local communities that host them.  Krishna [14] studied economic development indicators in 60 villages in rural India .  He found that literacy and social capital were the best predictors of economic advancement.  Both bridging and bonding social capital were essential.  The bridging had to be with organisations that operated outside the village and that had resources the village could use.  The Stakeholder 360 provides an assessment of the community on these crucial dimensions.

To promote poverty reduction, a mining company would follow a four step strategy.  First, it would assess the state of social capital in the community, using the Stakeholder 360 or a similar technique.  Second, with the information about the community’s priorities, the company would convene meetings and sponsor participatory projects that would bring the community together.  That would strengthen the social capital in the community.  Third, subsequent waves of Stakeholder 360 interviewing and dialogue would track the sharpening and clarification of the community’s economic goals.  Fourth, the company would begin linking community leaders with outside organisations that could provide needed resources.  In a typical mining community, the mine itself is such an organisation, but so are many of the organisations the mining company deals with, like the national government and international non-government organisations.

Planning and managing towards the community’s development goals can benefit companies in terms of reduced risk and company reputation.

REDUCED RISK

There is already a strong business case for creating and maintaining strong positive relations with stakeholders and hence being able to measure and respond to changes in the relationships.  Good relations lead to a much reduced risk of conflict, faster permitting and approvals, lower insurance premiums and easier access to loan financing.  The Stakeholder 360 helps companies obtain these benefits by enabling them to adjust their community relations programs to address measured needs.  It also lets companies give regulators, shareholders, banks and other interested parties hard evidence about the past and present state of relationships between a project and its stakeholders. 

COMPANY REPUTATION

For companies thinking about their long-term reputations, the Stakeholder 360 can confirm community visions of the future and so help set company priorities for investment and capacity building.  Being aligned with the community’s goals generates political support for the company, which, in turn, can be translated into a positive corporate reputation.  A positive reputation opens doors with the growing number of socially conscious investors and investment fund managers [15] and with communities where the company may wish to locate in the future.

The social-political side of managing resource development projects have become much more important for corporate success over the past 15 years.  Management concepts and tools remain relatively undeveloped as yet.  The Stakeholder 360 represents a practical step forward.  At the beginning of a project it can reveal the network structure and valence of existing relationships and interdependencies so that the project can be woven into the community’s fabric rather than ripped through it.  During the operating years it can provide guidance in minimising conflicts and dependency while stimulating spin-off economic development.  As closing nears, it can pinpoint the linkages that need strengthening in order to leave behind sustainable benefits and a thriving economy. 

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