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Akhila Vijayaraghavan headshot

Stakeholder Engagement in Mining Operations

Stakeholder Engagement in Mining

This post is part of a series on Stakeholder Engagement sponsored by Jurat Software.

Stakeholder Engagement can actually be worth its weight in gold. Prof. Witold Henisz of Wharton Business School has been studying political and social risk management for 15 years, focusing mainly on strategies of avoidance by studying gold mines. Henisz and this colleagues used data from 26 gold mines owned by 19 publicly traded firms between 1993 and 2008. By coding more than 50,000 "stakeholder events" found in media reports they developed an index of the degree of stakeholder cooperation or conflict for these mines.

The term "stakeholders" in this context, says Henisz, includes everyone from local and national politicians and community leaders to priests, war lords, paramilitary groups, NGOs and international bodies like the World Bank. The term "stakeholder event" includes reported actions or expressions of sentiment from these groups that indicate cooperation with the mine owners, as well conflict with them.

The researchers' goal was to figure out what role these stakeholder events played in companies' efforts to maximize profits. As Henisz notes:

"There is a powerful business case to win the hearts and minds of external stakeholders. We found in our research that the value of the relationship with politicians and community members is worth twice as much as the value of the gold that the 26 mines ostensibly control."

Putting a Value on Stakeholder Engagement

But how do you put a value on stakeholder engagement? In order to quantify this, the researchers looked at the firms' listings on the Toronto Stock Exchange, which requires each company to disclose enough data to calculate the net present value of their gold mine(s). The data includes audited information on gold reserves, what it will cost to get the gold out, what a mine's fixed costs are, etc. Based on this information, an estimate of gold value from each mine and market value of the parent company was calculated. Then tracking the actions of media-relevant stakeholders allowed the researchers to study the degree of cooperation and conflict for each mine. Then they came up with a single metric that served as an estimate of these delays and disruptions, improving the fit of the financial market valuation estimation of the 19 publicly traded parent firms.

"By incorporating this metric in a market capitalization analysis that also includes macro-political level constraints on policy change, we reduce the discount placed by financial markets on the net present value of the gold controlled by these 19 firms from 72% down to between 33% and 12%," the authors write in their paper.

This research is important because it finally quantifies what some mining firms have known all along -- that reducing conflict with external stakeholders in favor of winning their cooperation improves the companies' chances that a business plan can proceed on budget and on time, and most importantly, generate sustainable shareholder value.

Wider Implications of the Study

"Our findings are applicable wherever there is a project-based investment that can be delayed or disrupted and where people are worried about water supply, traffic patterns, environmental damage and so forth." Henisz says.

He has  also compiled a list of best practices for businesses that are serious about engaging stakeholders. First, he says, change the mindset of the company so that employees across the board believe that stakeholders are important. Second, get the necessary data to explain who the stakeholders are, what they want and who is connected to whom. Third, find a way to link data to operating performance, integrating the information into risk management systems rather than treating it as a separate category. Fourth, interact with stakeholders in the community in a genuine and fair manner; respond to their concerns and form connections rather than just writing a check. And last, find a way to disseminate information about the ongoing project that is credible and transparent.

Image credit: Unsplash

Akhila Vijayaraghavan headshot

Akhila is the Founding Director of GreenDen Consultancy which is dedicated to offering business analysis, reporting and marketing solutions powered by sustainability and social responsibility. Based in the US, Europe, and India, the GreenDen's consultants share the best practices and innovation from around the globe to achieve real results. She has previously written about CSR and ethical consumption for Justmeans and hopes to put a fresh spin on things for this column. As an IEMA certified CSR practitioner, she hopes to highlight a new way of doing business. She believes that consumers have the immense power to change 'business as usual' through their choices. She is a Graduate in Molecular Biology from the University of Glasgow, UK and in Environmental Management and Law. In her free-time she is a voracious reader and enjoys photography, yoga, travelling and the great outdoors. She can be contacted via Twitter @aksvi and also http://www.thegreenden.net

Read more stories by Akhila Vijayaraghavan