It’s been five years since the Business Roundtable, an association of more than 200 CEOs of leading US companies, redefined the purpose of a corporation as delivering value to all stakeholders—“our companies, our communities, and our country.”1 While the perception of stakeholder capitalism has evolved since then, the roundtable’s focus on stakeholders beyond shareholders reinforced the importance of a skill that not all chief executives have mastered: managing a broad range of relationships through proactive communication.
CEOs’ paths to the top office rarely allow sufficient development of ability to engage groups with disparate and at times competing interests. Before becoming CEO of Microsoft, Satya Nadella did not fully appreciate “how multi-constituent the world really is. It’s about shareholders. It’s about your team members and employees. It’s about customers and governments.”2 The real job of the CEO is to balance the needs of all those constituents.
This capability is one of the main attributes that sets the world’s best CEOs apart. Its significance is among the findings from McKinsey research described in CEO Excellence, which profiles the practices of the world’s best CEOs; The Journey of Leadership, covering the personal and professional journeys of human-centric modern leaders; and the upcoming Four Seasons of a CEO, a road map for the full life cycle of the CEO role. The best leaders advance the aspirations of their companies and society at large with compelling, singular narratives that inspire a wide range of internal and external stakeholders (table).
| Internal | External | |||
|---|---|---|---|---|
| Corporate | Business units/regions | Shareholders | Public | Business partners |
| Functions | Direct reports | Analysts | Academia | Alumni |
| Management board | Frontline workers | Investors | Communities | Business ecosystem |
| Supervisory board | High-potential talent | Owners | Governments | Competitors and peers |
| Leadership circle | Shareholder committee | Media | Consumers | |
| Nonprofits | Customers | |||
| Prospective talent | Industry associations | |||
| Regulators | Influencers | |||
| Thought leaders | ||||
| Unions | ||||
Many experienced leaders have expressed how important but difficult this is. While 58 percent of CEOs in one survey viewed external affairs as a top priority, only 12 percent of those same respondents described themselves as successful in dealing with government, regulators, and broader communities.3 Yet these relationships are critical to long-term corporate performance: on average, almost a third of corporate earnings are influenced by how a company engages with regulators.4 Addressing internal stakeholders’ needs is just as urgent, given that only 25 percent of employees report being inspired by their leaders.
To cultivate, maintain, and manage their ecosystem of relationships, leaders need to start with a deep understanding of their organizations’ unique purpose as well as the motivations and goals of their stakeholders. These insights will shape the core narrative the CEO shares through public platforms, with adaptations to make it meaningful to different audiences. Through continuous learning, the best leaders perfect and renew these messages over time, strengthening engagement and enriching their relationships.
Based on our experience working with private- and public-sector leaders, we believe successful stakeholder engagement has four characteristics, summarized in an approach we call EDGE: an Expanded view of the CEO’s role as the company’s bridge to the external world, a Distinctive narrative with the CEO as storyteller in chief, a Growth-oriented mindset that empowers a team of internal and external ambassadors to articulate the company’s vision, and an Engaged posture that systematically strengthens stakeholder connections and prepares the organization to handle inevitable crises (exhibit). This approach can enable CEOs to create meaningful interactions with positive outcomes and enduring impact.
Expanded: Embrace your role as the bridge to the outside
In recent years, CEOs around the world have been increasingly called to the public stage. Society expects corporate leaders to have views on everything from geopolitics to social issues, and every word CEOs say (or fail to say) is scrutinized. Business leaders therefore need to actively shape a consistent narrative, recognizing that internal communications will quickly reach external audiences and vice versa.
“That was the most challenging thing at the beginning of my tenure,” reflects Herbert Hainer, former CEO of Adidas, “to recognize that I was on the front line with external stakeholders: financial investors, the media, and other general exposure.”5 To harness the potential of this public platform, CEOs need thorough preparation, which includes reflecting on their personal journeys of leadership and their organizations’ unique place in the world. They need to deeply understand who they are and who they want to be, as well as how that relates to the culture, purpose, and values of the institution they lead. Organizational health research shows, for example, that companies whose CEOs actively listen and act on recommendations from frontline employees are 80 percent more likely than others to consistently implement better ways of working.
Innovative leaders also look outside their organizations’ walls to understand how their narratives will fit into the competitive landscape. Communications, risk, and investor relations teams should support these efforts with assessments of peers’ channel strategies, equity stories, partnerships, crises and reputational issues, board composition, investor relationships, and investments, among other aspects. Leaders should also look for successful communications strategies outside their own industries that could inform their own approach. Acquiring this expanded worldview makes CEOs more adept at embracing a critical facet of stakeholder relationships: the need to listen more than to speak.
Distinctive: Become the storyteller in chief of a singular, proprietary narrative
There are some things that only the CEO can do. One of them is integrating the perspectives they gather into a distinctive narrative that excites and engages all stakeholders about the organization’s strategy and vision for the future. Effective storylines encapsulate what we call the four Ws: Who, Why, What, and When.
Start with the Who and Why. The narrative should communicate Who the CEO is—their leadership journey, where they find inspiration and energy, and what they aspire to achieve. Personalizing their messages enhances their power. During a recent gathering of CEOs and strategy heads, one leader of an automotive company shared that he starts many presentations with a story about a group of young people traveling from a beach holiday. They get into a car crash. The passengers are ejected from the vehicle. “One of those young people was me,” he tells his audience, segueing to the reason why he and the organization make their cars’ safety the top priority.
The Why refers to the organization’s reason for existence, its mission, and its contribution to the world. High-performing companies are twice as likely as their peers to define their purpose in ways that resonate with employees. By understanding what motivates their employees at a deeply personal level, CEOs can strive in each interaction to deepen their colleagues’ commitment to the organization’s mission. Leading CEOs also tap into their institutions’ heritage to demonstrate the full potential they want to realize. In doing so, they prove themselves to be both students of their company’s history and innovators who galvanize their teams to reach for new possibilities.
Aside from the organization’s own motivations, the narrative also needs to address the Why of the stakeholders—their purpose and goals. Through years of dealing with the media, Netflix chairman Reed Hastings has come to realize that “they want to be truth tellers, but they’re forced to be entertainers. If you understand that conflict, you can help them be entertaining and also get some truth through.”6 Such insight into stakeholder mindsets can make the difference between a transactional exchange and the development of a more enduring relationship.
We find that CEOs often underestimate the importance of the Who and the Why, going straight to the What and the When. However, modern, human-centric leadership requires leaders to carve out time for self-reflection and continuously recalibrate their views and messages. Leading CEOs also recognize that storytelling at its best incorporates moments, experiences, or aspirations that are jointly shared.
Establish the What and When. Only after answering the Who and Why should leaders formulate What their agenda is. The goal is to share the organization’s aspirations in simple but compelling ways. Rodney O’Neal, former CEO of auto parts maker Delphi, for example, implemented a highly successful transformation in part by rallying his organization around a simple yet powerful mantra: safe, green, and connected. “The idea was that our products would appeal across national boundaries,” he says. “No matter where they live in the world, everyone wants a vehicle that’s safe, green, and connected.”7
A crucial factor in that agenda’s success is When to communicate and roll out the plans, as sequencing can be vital. Leaders should identify the best channels and moments for sharing their agenda and mobilizing stakeholders to action. Articulating these plans and timelines helps align stakeholders on concrete actions to accomplish shared goals.
As leaders repeat their narratives, they become more skilled at fine-tuning messaging for competing communication priorities. For example, the CEO must share and stage—deliver information that stakeholders need to know now and plant seeds about the company’s future actions. CEOs also must speak to the head and the heart, especially during periods of uncertainty or transformation, when the CEO needs to project confidence in the path forward while helping stakeholders contend with complex emotions.
By communicating in context and managing these polarities, CEOs reinforce their organizations’ enduring themes and progressively deepen the level of engagement—from informing stakeholders to inspiring them. “One of the most valuable things another CEO told me is that employees don’t remember what you said or what you achieved, but they do remember how you made them feel,” says Nissan CEO Makoto Uchida. “You have to appeal to their hearts. You have to make them want to do something great together. That to me is the definition of leadership.”8
Growth oriented: Empower a team of ambassadors to articulate the company’s story
While some messages must come directly from the top, chief executives should not carry the responsibility alone. The best CEOs create a deep bench of leaders who can carry and cascade the core narrative. “The Holy Grail is to have 12 people on a management team who are equal voices and equal storytellers,” says Richard Davis, the former CEO of US Bancorp. “That means they can speak for the team and for the company, not just for themselves.”9 In dealing with the investor community, for example, top CEOs typically spend time with 15 to 20 of their most important investors and assign communication with others to their CFOs and investor relations departments.10
But communication is a skill that must be cultivated. Our research shows that organizations which report frequent success in “shaping relevant policy debates” and “enhancing their corporate reputations” are nearly five times more likely to train their executives to engage with external stakeholders. Scott Herren, CFO of Cisco, told us that the number-one piece of advice he gives aspiring CFOs is to “focus on communications, and in particular storytelling with data … . [It’s] something that I significantly underappreciated before I got in this seat.”
By embedding communication as an institutional capability and helping senior leaders personalize the organization’s narrative, CEOs can speak not only to but through their teams. For example, at a recent summit we held for senior executives, the COO of a technology company told us that she tends to focus on the What and the When of the organization’s story when engaging with stakeholders while the founder and CEO concentrates on the Who and the Why. Together, “we balance each other,” she says, and reinforce each other’s messages.
CEOs can gain significant leverage from using their teams to convey key messages. We find that effective leaders are assertive about the process of discovery and development of a joint narrative, but open to feedback and humble in the collective solution. They trust in the power and fresh insights that come from collaboration and a collision of views, after expectations are set. One chief executive told us that she assembles her top 100 executives each month to test new ideas and messages. In helping develop the narrative, those leaders take ownership of the story and cascade the messages across the organization. The organization’s ambassadors need not come solely from within its walls. Investors, customers, alumni, and suppliers who understand and embrace the company’s story can amplify it to and through their own networks. CEOs who cultivate peer networks can find those business leaders becoming important magnifiers of messages that cut across industries or the entire business community.
Engaged: Maintain a consistent communication drumbeat, even during crises
On average, chief executives spend 30 percent of their time with external stakeholders.11 But they need to prioritize because, even with this substantial allotment, they cannot personally engage with all stakeholders. Former CEO of Intuit Brad Smith was rigorous about ensuring that if he spoke with a reporter, for example, he could justify why that should take priority over time he might spend with a top shareholder.12
A best practice, in our experience, is to have a yearlong view of the stakeholder management tasks the CEO will perform, including investor calls, customer visits, media engagements, and conferences. This agenda should take into account not only CEOs’ time availability but also their emotional energy, as some engagements (such as board meetings or investor presentations) are more taxing than others (breakfasts with employees, for example).
When deciding which stakeholders the CEO should engage with, the guiding questions should be strategic:
- What is the overall purpose of this interaction and the desired outcome we are seeking?
- Can this stakeholder help reinforce or augment our strategy?
- Can we cocreate or infuse new thinking into our strategy by engaging with this stakeholder?
- Are there any short- or long-term risks in either engaging or failing to engage this stakeholder at this time?
- Do we as an institution need to nurture this relationship? Will meaningful, deliberate interventions help propel forward our agenda?
Strong relationships with stakeholders are valuable during the ordinary run of business; they become critical, even decisive, in moments of crisis. Whether internal or external, self-inflicted or caused by an outside event, crises are inevitable, and the potential for them grows as stakeholders increasingly demand that leaders take stands on social issues.13
While CEOs and their organizations may view issues through their own prisms, they should all use judgment and imagination, underpinned by their organization’s ethics and values. CEOs and their top teams should create guidelines for determining the benefits and risks of engaging in external issues. IBM leadership, for example, weighs its stances based on five dimensions: organizational precedent, relevance to the business, stakeholder perceptions, competitive assessments, and long-term impact potential.14
Organizations that emphasize social responsibility are almost twice as likely as their peers to respond effectively to competitors and to have high customer loyalty. However, any decision to take a public stand comes with risks of internal and external dissent. As such, the management team should align on whether the issue is important enough to the business and their stakeholders. These issues should be those embedded into the organization’s DNA and its critical path for long-term impact. If a CEO does decide to speak out, they must be prepared to back their words with commitments of both financial and human capital to ongoing actions that tie to organizational values.
When managed effectively, these crucible moments—whether they are emotional debates on social issues or full-scale crises—can strengthen bonds among teams by uniting employees around a cause and the organization’s broader contribution to the world. Indeed, employees whose sense of purpose connects with that of their companies are five times more likely than their peers to feel fulfilled at work. “Leading during a crisis means a combination of strong leadership on one hand, but also incredibly empathetic and potentially vulnerable leadership on the other hand,” says Charles Lowrey, president and chief executive of Prudential Financial. “Because people want to know you were feeling the same thing they are.”15
Galvanizing stakeholders around the organization’s mission can often seem less urgent than initiatives with immediate and clear influence on performance. Effective CEOs know otherwise, and they approach communications with the same rigor as they do financial performance. Leaders who treat the “soft stuff” as the “hard stuff” more than double the odds of a strategy being successful, and the impact of its execution is nearly double that (see sidebar, “Six ways CEOs create a lasting EDGE”).
In the five years since the Business Roundtable redefined the purpose of a corporation, stakeholders’ voices have grown more influential. Organizations, and the CEOs who lead them, have an opportunity to breathe new life into the Roundtable’s words that “each of our stakeholders is essential. We commit to deliver value to all of them.” To do so effectively, leaders should cover more surface areas with an expanded view of communications, develop a distinctive narrative with proprietary themes, instill a growth-oriented mindset across the organization while cultivating a deep bench of internal and external storytellers, and have a clear road map for engaging with stakeholders, especially during periods of disruption.
An effective, dynamic communication platform shifts the CEO’s posture from being reactive to anticipating and shaping stakeholder perspectives. It evolves their approach from ad hoc messaging to a systematically developed and deployed communication agenda. It is through this kind of engagement and these meaningful connections that CEOs will cocreate a more impactful future with their stakeholders.
