How Gap Became the Poster Boy for Strategic Stakeholder Engagement

Many companies still consider stakeholder engagement a good idea they’ll consider sometime in the future when they’ll have the time and resources. But for Gap Inc. it became clear about a decade ago, after being targeted several times due to labor violation accusations as well as redwood forest degradation, that not only they have to start interacting with stakeholders, but they also have to do it right.

The company then started a journey that made Gap one of the most professional and successful companies when it comes to stakeholder engagement. Their experience is a great example of a strategic approach that provides results, and it also offers valuable lessons for other companies.  Actually, every company should review the Gap stakeholder engagement strategy – not just for their stakeholders’ benefit, but for the company’s own good.

A good starting point is a new article released earlier this month on MIT Sloan Management Review (Summer 2011), which chronicles Gap’s journey. The article, ‘How Gap Inc. Engaged With Its Stakeholders’, by N. Craig Smith, Sean Ansett and Lior Erez is based on in-depth interviews conducted in 2009 with Gap management and key external stakeholder representatives.

According to the article, Gap’s efforts actually began almost two decades ago. In 1992 Gap published a set of sourcing principles and shared it with vendors in the garment industry. Four years later, in 1996, the company developed a code of vendor conduct (COVC) and made it public. Gap explains that its COVC “establishes the legal, social and environmental requirements that all manufacturers and factories must meet in order to do business with our company.” “Our code,” they added, “is designed to ensure that garment workers are paid fairly, work a reasonable number of hours, and do their work in a safe, healthy environment.”

Gap believed that establishing such a code and creating a compliance team that will monitor and police it will do the work. They were wrong. In her book No Logo, author Naomi Klein explains that codes of conduct are awfully slippery. “Unlike laws, they are not enforceable. And unlike union contracts, they were not drafted in cooperation with factory managers in response to the demands and needs of employees.”

Despite its flaws, Gap thought its COVC is the right tool to make sure its contractors treat their employees fairly. Still, the allegations kept coming – from a legal suit over labor conditions in a supplier’s factory in Saipan (1999) to a BBC documentary accusing Gap (and Nike) of ignoring the problem of child labor in a subcontractor’s factory in Cambodia. These episodes and the protests that followed against Gap got the company to understand that its “legalistic risk-mitigation approach” doesn’t work. Gap’s executives decided to look for an alternative strategy.

The company’s search for a new effective model of stakeholder engagement can be divided, according to Smith, Ansett and Erez’ article, into five phases.

The first step was to identify who they’re actually dealing with and develop a stakeholder map. It wasn’t only about mapping the stakeholders, but also about prioritizing them. “We recognized that it would not be possible for us to have a strategic relationship with each of the stakeholders, so we highlighted those who we deemed to be the most key,” Deanna Robinson, Gap’s head of monitoring and vendor development explained to the authors.

After identifying key stakeholders Gap started meeting with them to better understand their point of view. These conversations led not only to better communication and in some cases to partnerships with stakeholders, but also to the second step, which was identifying the material issues, in other words – what the most important social issues the company need to deal with.

The third step was defining objectives based on the input received from the stakeholders Gap met with. One of the company’s top objectives was increasing its transparency and as a result the company published its first CSR report in 2004. Gap was the first big retailer to do so and the report got a general positive response because of its willingness to be open and honest about problems and failures. Nikki Bas, of California-based Sweatshop Watch, told the Guardian back then that it was "the kind of information we have been pushing them to provide for years."

Gap’s next step was resolving issues collaboratively, working simultaneously with multiple stakeholders to address a specific problem, and even initiating a series of stakeholder meetings in one case to discuss the company’s strategy in the era after the phasing out of the Multi Fiber Arrangement.

The last step Gap took was to embed stakeholder engagement into the company and make sure skeptics both inside and outside the company understood this is not a gimmick, but part of the company’s strategy. Cleverly, Gap hired “boundary spanners,” people familiar with both the corporate side and the stakeholders side, to defuse potential tensions and make sure communication lines will stay open and work effectively.

Gap’s strategic approach didn’t end their subcontractors’ labor and environmental violations, but it helped the company to establish trust among its stakeholders and improved its ability to solve complex problems. It also led to reduced risk of negative headlines and protests against the company, as stakeholders provided the company with the opportunity to address issues before they reach the media as the stakeholders trust the company and its willingness to improve its stakeholder practices.

These results only prove that just like with CSR, when it comes to stakeholder engagement good intentions are not enough. A truly effective win-win model can only be based on a strategic approach. Just ask Gap.

Picture credit: Old Navy products, from parent company Gap

Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is also an adjunct professor in the University of Delaware’s Alfred Lerner College of Business and Economics.

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