I love a good scare. It gets the adrenaline pumping and mind racing. There’s no better time to figure out how you’d really react than when faced with fight or flight. Horror stories also teach us lessons both easy to understand and hard to forget. In the spirit of Halloween, Fulcrum presents three real-life stories about everything that could go wrong when you forget to engage your stakeholders.
Marks & Spencer, China – Wait…We Have Consumers?
The most recent of our three stories, Marks & Spencer learned first hand what happens when you forget stakeholder #1. The British mega-retailer, with operations in nearly 1,200 locations, established its presence on the Chinese mainland in 2008. Banking off huge success in the former British colony down south it seemed an easy win to bring things over the border.
But, that’s all they did. In a classic tale of “lift and dump,” Marks & Spencer simply brought the big box retail concept to China’s megacities. Customers walked into double story venues replete with racks of British-style clothing, made-to-order Seville Row suits, and a food hall filled with treats fit for the Queen. To say this was foreign would be an understatement. Clothing sizes were too big for Asian frames, price points were out of whack with market norms, and food was, well, a bit confusing. Frozen fish and chip packs, by example, were thought to be a surefire bestseller. In a country where more than two-thirds of homes have no oven, though, customers were left wondering why they’d want to gnaw through frozen breaded cod.
It was only a matter of time for the inevitable to become a reality. In May this year, Marks & Spencer pulled its mainland operations. Even then, they did so without really consulting anyone. When the announcement was made, employees were given 30 days to find a new place to work. Flash sales and deep discounts resulted in lines of disgruntled people fighting over the last packet of ginger snaps. All that’s left today are boarded up storefronts on major intersections throughout China’s east coast. Now a blight on the urban landscape, Marks & Spencer also leaves a lasting tale of misguided strategy.
Caught Under the Table
Quick word association. I say Chinese Government, you think…
Not to be a cynic, but I’m guessing many of you thought corruption. While it’s true this is still the land of bribery and under-the-table business dealings, the Central Government has made it a priority to relinquish this to the past. Two companies operating in China found out just how serious the Government was.
Both Qualcomm and GlaxoSmithKline are well-established global brands with rich histories. One makes the chips that power our smartphones and other electronic goodies. The other works with doctors and labs to find innovative treatments to disease. In their respective industries, both are mega players with huge revenues to match. In 2015, Qualcomm brought in an estimated US$23.5 billion and GSK close to US$36 billion.
That means there’s lots of cash floating around. In a relatively unregulated market like China, especially compared to the U.S. or U.K., local autonomy resulted in less-than-scrupulous practices. Qualcomm ran afoul when the Chinese Government deemed their operations monopolistic and questioned the chipmaker’s use of patents. GSK, on the other hand, was found to be paying bribes to doctors to use their drugs.
At Fulcrum, we often talk about a company’s Holy Grail Opportunity. This is when business can support the Government to achieve its targets. The opposite of this is what Qualcomm and GSK experienced, perhaps an “opening the gates of Hell” opportunity. Instead of supporting Government priorities, the companies were actively working against them. The result was record-breaking fines for both. In the case of GSK, US$489 million; for Qualcomm, a whopping US$9975 million.
Machetes are for More than Chopping Trees
Our final story brings us to lush, semi-tropical Guangxi. Located in China’s south, the panorama spills over with limestone cliffs, crystal turquoise water, and canopies of full, pencil-thin trees. It’s the perfect spot to relish China’s pastoral past. For a paper mill, there’s no better place to set up shop.
That’s exactly what Stora Enso, the world’s oldest company, decided to do. Better known locally as Asia Pulp and Paper, Stora Enso is one of the largest paper manufacturers. Today, it produces paper, packaging, wood products, and biomaterials. Back in 2010, the company set its sights on Guangxi as the location for its newest mill.
On paper (pun intended) Stora seemed to tick every box. They consulted with provincial and local government officials, strategized how to build their operations in a sustainable fashion, and met all building regulations. As they came to find out, there was one stakeholder left out of the conversation.
Forestry is not a new industry in Guangxi. In fact, the local communities have been engaging in tree felling and production for hundreds of years. The local manufacturing base and supply chain were established well before Stora Enso showed up. Livelihoods for generations of workers were rolled up into this most central of provincial industries. When Stora came in, they threatened to upset the natural ecosystem through large-scale farming and put many families out of work. It was only as the walls of the mill began to rise did locals realize what was happening.
What happened next seemed ripped from the scenes of a horror movie. Local workers, armed with machetes, began taking matters into their own hands. Instead of chopping down trees, though, they were going after representatives from Stora Enso and government officials they viewed as capitulating to profit and greed. Even when trying to rectify the problem through town hall meetings, tensions boiled over into fistfights. Nearly a decade on, Stora Enso’s reputation in the region is less than stellar. While the mill is operational, the journey taken to get there is the stuff of nightmares.
The lesson from all these stories, and there are countless others, is this: forget your stakeholders at your peril. As we wrap up this month of Fulcrum Exploration articles on stakeholder engagement this is the key message to take away. Whether it's through stakeholder identification, materiality analyses to find drivers, or knowing which roads to avoid, engagement must be central to any sustainability strategy.