Burned by bad publicity, British Petroleum, Unocal, Freeport-McMoRan, and almost every natural resource company now embrace it. Academics and journalists – including Ethical Corporation magazine – extol it. Gatekeeper NGOs such as Human Rights Watch, Friends of the Earth, and Sustainability demand it.

Multi-stakeholder dialogue: It’s the hot buzz concept, promoted as a sure balm for resolving environmental disputes.

The politically correct consensus is that transparency demands that multinational corporations engage advocacy groups to mediate hot-button issues: global warming, GMOs, resource exploration, globalization, human rights disputes. But let’s not sing Kum-Ba-Ya ‘round the campfire just yet. The dirty little secret is that stakeholder dialogue is wildly overrated and often counter-productive––for businesses and even for their advocacy antagonists, who frequently back policies that hurt the very stakeholders that they presume to represent.

This paradoxical reality is rooted in the vague notion of what defines a stakeholder. No company can thrive in today’s ultra-competitive world market without catering to those with obvious stakes in its prosperity–customers, employees, and business partners as well as the government and communities in which it operates. But that’s not what ethical fashionistas have in mind when they promote stakeholder dialogue. Today’s zeitgeist, articulated in 1984 by University of Virginia’s Ed Freeman, defines stakeholders as “any group or individual who can affect or is affected by the achievement of an organisation’s purpose.” That loosey-goosey definition has opened the door for any advocacy group to demand a place at the negotiating table, even those openly hostile to the values of a company’s primary stakeholders.

Consider the brouhaha in 1995 over the scuttling of the Brent Spar oil platform. Before the blow-up, Shell was thought of by environmentalists as being among the most proactive resource companies. After four years and 30 studies, and in consultation with scientists and government agencies, Shell chose what most everyone agreed was the most environmentally and economically responsible disposal option: sink the rig in a deep North Sea channel.

But as a richly funded NGO, Greenpeace had its own agenda and the power to shape events. It demanded that Shell capitulate to its plan to dismantle the Spar on land. When Shell held firm, Greenpeace launched a holy war marked by guerilla raids (which were satellited around the world by journalists who later confessed they were duped), provoking service station bombings.

Did Greenpeace embody the best interests of the “natural environment.”? Did it exercise its responsibilities as a stakeholder partner?

History has not been kind to Greenpeace. To subvert public debate, it issued estimates of the toxic dangers of sinking the rig that it later admitted were wildly exaggerated. But in the hysteria of the moment, they had the intended effect of turning the public and harried government officials against Shell’s more environmentally reasonable plan. By the time Greenpeace publicly acknowledged that it falsified data, the damage was done.

Based on confessions from Greenpeace officials, it appears its campaign of misinformation and confrontation were not driven by a desire to protect the marine environment–virtually everyone now agrees that Shell’s option was far more environmentally responsible than Greenpeace’s–but by internal politics, particularly its need for a publicity-generating, donation-inspiring spat.

Those who piously claim that Shell failed because it didn’t consult with a key stakeholder don’t appreciate the dynamics of dialoguing with an implacable ideologue. (See my essay “Shell, Greenpeace and the Brent Spar: The Politics of Dialogue” in Case Histories in Business Ethics, Megone & Robinson, Routledge, 2002). In the end, the biggest loser was a key stakeholder: the environment.

As a rule of thumb, the more ideologically divisive the issue, the more likely this degraded version of stakeholder dialogue will prevail. NGOs that claim to represent broad “ethical principles”–for example, the interlinked groups that have coordinated sometimes violent protests against the World Bank and International Monetary Fund as representatives of the developing world–justify their tactics by claiming to be stakeholders. Certainly advocacy groups can play invaluable roles in illuminating overlooked social problems and stirring public and even government oversight. But that’s a far cry from granting stakeholder status and inviting them into the boardroom for “negotiations”.

Not only do traditional stakeholders suffer but so do the causes NGOs purport to represent. As often happens when the global limelight shines brightest, Western NGOs, desperate to break through the noise clutter and appeal to donors in wealthy nations, exaggerate causes (black and white plays better than shades of gray) and distort their own principles. As Clifford Bob notes in Foreign Affairs (“Merchants of Morality”, March/April 2002), “multinational corporations and international financial institutions have repeatedly served as stand-ins for obscure or recalcitrant local enemies. … [A] movement … can project an effective if sometimes misleading snapshot of its claims by identifying itself as the anti-McDonald’s movement, the anti-Nike movement, or the anti-Unocal movement.” In other words, NGOs often willfully cast corporations as a villain to pursue its aims–even though in many cases, as with Greenpeace and Brent Spar, its goals hurt the real “stakeholder”.

Unsavory tactics by over-the-top antagonists (animal right, anti-free tradenik, and genetic engineering extremists come to mind) have radically recast the notion of stakeholder engagement. What at its best is a constructive way to build consensus among primary stakeholders often devolves into an activist tactic reflecting an almost reflexive anti-multinational bias. Greenpeace and other NGOs that engage in non-negotiable ultimatums, deceit and even violence while demanding a slot in the boardroom should be marginalized as faux stakeholders––or “dangerous stakeholders” (see Mitchell, Agle, Wood, “Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts,” Academy of Management Review, October 1997).

Shell, Unocal, and other companies who have faced well-publicized confrontations are slowly absorbing this lesson. They have emerged as major proponents of stakeholder dialogue, but of a limited sort: information-disclosing websites and innocuous, but well-publicized meetings designed to diffuse issues before they boil. British Petroleum has embarked on the same strategy in its “dialogue” with NGOs over its Bintuni Bay project in West Papua, Australia.

So when, if ever, is stakeholder dialogue with advocacy groups appropriate? History has shown that dialoguing encourages consensus when expectations are modest–and usually as part of the healthy give-and-take between legitimate stakeholders. At best, dialoguing with NGOs may diffuse tensions early in a messy situation before ideological factions have hardened. Beyond that, beware: Dialoguing can be dangerous to stakeholder health.