Where Halliburton Went Wrong: Stakeholder Engagement is not Stakeholder Domination

This week, Corpwatch is all about Halliburton. Their former subsidiary, KBR, still has multibillion dollar contracts from the Bush administration, but with Obama’s promised troop pullout and public sentiment towards Halliburton and KBR in a significant slump the company’s future contract bids will face significant public flak.

It’s worth asking how something that seemed so right could turn so wrong. Having a former CEO as Vice President seems like the ultimate government relations coup. A recently released book by Pratap Chatterjee outlines how Halliburton leveraged strong relationships with its government stakeholders to significantly drive profits (in this case by helping to start a war.) It’s the fulfillment of a philosophy hinted at by Cheney while he was still CEO. He said that:

“We have a broad prospective of who are global stakeholders. At Halliburton they include shareholders, employees, retirees, customers, business, government and sometimes non-government organizations.”

But that

“Sometimes government can get in the way of sound policy.”

Freeman et al would see two big red flags in those statements, red flags which hint at the stakeholder predicament in which Halliburton finds itself today. First, when listing their stakeholders they do not include the communities in which they operate. Though Halliburton pays lip service to the community relations on their website, their traditional philanthropic approach indicates that they see community relations as a secondary item unrelated to their core business strategy. Bad move.

Now that the political winds have changed, Halliburton and KBR’s poor public image are poised to have a nasty impact on the government relations which are core to their business. If Halliburton/KBR had considered the community a key stakeholder they may have paid more attention to the negative impact that warmongering would have on that relationship. Failing to engage peace activists to take their concerns into account has translated into big risks for Halliburton in the course of just a few short years.

There is also Cheney’s second statement. What did it mean to have a government relations strategy founded in part on the idea that Cheney could do the government’s job better? Though Halliburton (which included KBR at the time) was highly successful in gaining government influence it arguably gained that interest at the expense of what Freeman et al would deem a positive stakeholder relationship. Halliburton did not seek to understand and respect the government’s agenda so that it could effectively integrate that agenda with its own. Halliburton leveraged its influence to shape the government’s agenda around its goals. While profitable in the short term, this “don’t listen, dominate!” approach is quickly crumbling now that Halliburton’s government influence has waned. A stakeholder strategy grounded in respecting and listening to public needs rather than gaining power over them would have proven more profitable for Halliburton in the long term.

The lesson here is an interesting one. Having control over a stakeholder only works so long as that mechanism of control can be maintained. In the long run, a good relationship based on mutual respect is better business.

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