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December 17, 2013

Book Review: Engaging Outraged Stakeholders
    by Robert Kropp

The three authors, who are executives with the nonprofit organization Future 500, counsel for a dispassionate approach to problem solving when corporations and civil society organizations meet.

SocialFunds.com -- That the incorporation of environmental, social, and corporate governance (ESG) considerations into investment decision-making has only grown since the financial crisis suggests that a long-overdue and major shift in the capital markets might well be underway. As a result the sustainable investors who spearheaded the prioritization of what were once considered extra-financial concerns find themselves increasingly a voice in mainstream investment.

One effect of the increasing influence of sustainable investors has been growing support by many mainstream investors for shareowner resolutions addressing ESG issues. That, in turn, has encouraged corporations to engage with shareowners in order to find common ground on those issues. While a significant number of sustainable investors are currently arguing in favor of divestment from fossil fuel companies on environmental and long-term financial grounds, those favoring engagement assert that divestment will accomplish little more than removing their presence from the table at which they could influence the behavior of corporations for the better.

Investors are not featured among the primary stakeholders whose engagements with corporations are outlined in Engaging Outraged Stakeholders, authored by three executives of the nonprofit organization Future 500. But by describing a number of successful interactions between corporations and civil society groups—addressing such issues as the passage of the California Bottle Bill and efforts to end the deforestation of rain forests—the book can provide investors with rudimentary tools for approaching engagements with companies in their portfolios.

Basically, what Future 500 calls for in Engaging Outraged Stakeholders is a solutions-oriented approach. In other words, for corporations to demonize stakeholders wishing to engage with them on important environmental and social issues serves no purpose; if anything, such an approach is more likely to increase pressure on corporations through often widely publicized stakeholder campaigns. Corporations are understandably protective of their brands, and in this era of social media the danger of reputational damage can be considerable.

Consider, for instance, the cautionary tale of how Chevron has dealt with a successful multi-billion dollar lawsuit against it for environmental damage in Ecuador. For years, shareowners have sought to engage with Chevron over the potential long-term damage of choosing “to fight till hell freezes over and then fight it out on the ice,” as the company's own legal counsel described its strategy.

However, instead of choosing to engage with concerned shareowners, Chevron chose the extraordinary tactic of issuing subpoenas against its own shareowners and filing an ethics complaint against the Thomas DiNapoli, the New York State Comptroller. Meanwhile, courts in countries where Chevron has extensive holdings are ruling that the Ecuadorian plaintiffs in the lawsuit have the legal right to pursue assets in those countries to enforce the judgment in the case.

This is unlikely to represent a course of action that the authors of Engaging Outraged Stakeholders wold recommend. “The core of expert and successful stakeholder engagement is dialogue and sustained, structured exchange,” co-author Bill Shireman said of the book's message.

The potentially successful approach of ongoing and structured exchange is exemplified among institutional shareowners by the decades of engagement with corporations by members of the Interfaith Center on Corporate Responsibility (ICCR), a pioneer of modern shareowner activism. In recent years, the number of shareowner resolutions filed by ICCR members has plummeted, while the number of ongoing engagements has increased.

“How do you take 650 resolutions without much dialogue, and distill them down to 150 with much richer dialogue and get ten times as many mainstream investors voting with you?” Executive Director Laura Berry asked in the course of a conversation last year with SocialFunds.com. “The business case for sustainability has become more specific. It no longer requires a belief system, because it's become meaningful for companies' business practices. And ultimately, all of our work is about changing how companies do business.”

The authors of Engaging Outraged Stakeholders maintain an evenhanded approach to engagement throughout the book, but the reader is likely to conclude that the message is primarily directed to corporations. Among the examples of Future 500's work highlighted on its website are building support for a carbon tax and expanding Extended Producer Responsibility (EPR) policies in the US. And in the book's afterword the organization describes itself as being against socialized costs, and for the internalization of externalized environmental and social costs.

One need not be an unregenerate cynic to suggest that many corporations have been more than content to continue to reap the unsustainable short-term advantages of externalization. But what the ICCR experience suggests is what Engaging Outraged Stakeholders espouses: get the parties to the table to talk about addressing significant problems before they develop into full-blown crises. Corporations may not have track records of surrendering short-term profits in exchange for long-term sustainability, but we live in interesting times. The message of Engaging Outraged Stakeholders, and the mission of Future 500, contribute to a pathway toward sustainability that is in the best interests of corporations and society alike.

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