Paying the Price for Stakeholder Conflict

The Australian media is currently afire with “he-said, she-said” accounts of the recent industrial dispute between the construction company, Grocon and the Construction Forestry, Mining and Energy Union (CFMEU).

For nearly three weeks, the CFMEU and its members blockaded the construction site of a major development in the heart of Melbourne’s central business district.

Negotiations broke down multiple times before finally reaching an agreement.  Grocon allege that the CFMEU have held them to ransom over the appointment of shop stewards and on-site health and safety officials.  The CFMEU maintains that Grocon has been suppressing union membership and the display of union branded clothing and equipment.

This impasse can be seen as a crisis of trust between stakeholders.  It is estimated to have cost Grocon more than $100,000 a day. Moreover, the cost to the tax payer, incurred primarily by the hefty police presence, is estimated at $500, 000 each day.

Suddenly, it becomes easy to calculate the value of what is effectively, the withdrawal of Grocon’s social licence to operate by a key stakeholder group.

The social licence to operate can be understood as the level of acceptance or approval that an organisation enjoys, as granted by its stakeholders. It is an indicator of socio-political risk and when withdrawn, can jeopardise the viability of the business itself.

Social capital is the foundation for the social licence to operate.  Often, social capital is dismissed as a lofty concept because of challenges associated with its measurement.  Social cohesion, trust, motivation to collaborate; all these elements of social capital are vital for businesses in building productive relationships with their stakeholders and the communities in which they operate.

Paying attention to these stakeholder engagement issues can be seen as a discretionary activity that gets pulled when times get tough and budgets need to be reined in.  That is, of course, until something goes wrong.  Then it becomes abundantly clear about how to calculate the total asset value of a company lost in the throes of a crisis.

Source: Anna Strumilo

The publicly-quoted losses associated with the Grocon/CFMEU dispute only capture time, labour and construction costs.  Never mind that the dispute has eroded social capital due to stress, mistrust and fractured relationships, which will no doubt plague both parties in their future interactions. Then there is the cascading strain placed on families, suppliers, customers, other employees, politicians and those in the wider stakeholder network of both parties.

Finally, the reputational implications for both Grocon and the CFMEU are severe, with their motives and actions currently being interrogated in the court of public opinion.

Here at ACCSR, we often work with clients who are interested in engaging with their stakeholders. But I believe the test of their intent is their ability to make targeted investments in strategic engagements with stakeholders with whom they do not always see eye to eye.

Turning opposition or disapproval into collaboration is one of the more complex challenges facing many organisations.  But making a “critical friend” can be a strategic way of forging social capital between stakeholders and building that critical foundation for the social licence to operate.

The current Grocon/CFMEU dispute shows why it’s worth putting time and effort into that engagement. Building up reserves of social capital brings with it tangible benefits that are all too clear during a crisis.

Soraya Dean is a consultant at ACCSR, who meditated on this issue each day as she rode past the blockade on her way to work.