The "S" Pillar: Your biggest operational risk may sit in your relationships not in your processes

I call them “Life Changers”. Petrina (Trina) Gill is one of mine. 

We first met in my office on a very dark, rainy and cold November afternoon in the UK 15 and a half years ago. She interviewed for a job with me, and she is now one of my closest friends and one of the sharpest thinkers I know.

I had been working in ESG and sustainability for 17 years when Trina walked through my door. I thought I understood the field well. Trina forced me to fundamentally rethink one area, the "S" Pillar of the House of Responsible Business. 

Simply put, some of a business's operational risks don’t sit in processes. They sit in relationships. When critical relationships break down, the bill is operational and financial.

Two years later, we watched that play out in real time in Turkana, Kenya. The cost ran to hundreds of thousands of dollars a day

What the ‘S’ Pillar actually covers

When people hear the “S” in ESG, they think of diversity programmes, corporate philanthropy, and employee volunteering, often bundled under “CSR”. All worthwhile, but not usually what determines whether a business runs smoothly or struggles, especially when you are running a business with limited time, people and money. 

This S pillar, social performance, is about how you treat the people your business depends on and those significantly affected by your operations: your employees, investors, customers, suppliers, contractors, neighbours, and the communities your operations touch.

The social issues that matter to them include:

• employee health, safety, and wellbeing;

• fair terms and reliable support for your suppliers;

• product safety and quality for customers; 

• responsible supply chains – for example, reasonable steps to ensure no child labour or modern slavery);

• respect for local customs and community expectations; and

• social investment linked to your business activities. 

Unlike the "E" (environmental management) pillar, you might find it easier to identify with these issues. Again, you may not have labelled them as ESG; they may just be “business-as-usual”. That is great!

The question then is: Are you managing them effectively by reducing the risks and making the most of the opportunities they present? 

The real cost of broken relationships

Over my 30-plus years of working in ESG and Sustainability, from mine to boardroom, I have spent and still spend a great deal of time with the people whose relationships with a business determine whether it runs smoothly or not. They are investors and shareholders, employees, union representatives, community leaders and members, regulators, customers and consumers – from Hoima to Washington DC. 

They were rarely “nice to meet you” meetings. Most took place because more information was needed about the company's ESG performance, or because misunderstandings were creating risks to the business, mistrust was causing delays, and unresolved tensions were threatening operations. There were conversations about whether the company would receive or continue to receive investment; whether projects moved smoothly or faced resistance or delays; and whether a much-needed licence would be granted on time, at all, or delayed. I listened to expectations, concerns, and frustrations, answered questions, and explained business decisions, constraints, and trade-offs. 

Most people I meet are not looking for perfection. They want to be heard and to have clarity, consistency, fairness, and accountability.

Sometimes those conversations didn’t yield the results the business wanted. But they always allowed the business to plan. Something that would not have been possible if the conversations had not taken place.

What it looks like when it goes wrong

When the relationships that are important to your business weaken or fail, the consequences spread quickly across the business. Projects are delayed, costs rise, customers leave, regulators intervene, investors lose confidence, productivity falls, security deteriorates, permits are denied, and reputations are damaged in ways that are slow and expensive to repair.

I have seen companies convince themselves they have a staffing problem when the real issue is a breakdown in trust and communication. Employees who feel ignored, unfairly treated or disconnected from the direction of the business do not always protest openly. More often, it shows up quietly: lower productivity, higher turnover, absenteeism, poor customer service, mistakes that could have been avoided and talented people leaving at a time when the company needs them most.

The business often experiences the operational and financial impacts long before it recognises that it is a social performance issue and should be addressed as such. 

South Africa’s platinum sector provides a powerful example. The 2014 platinum strike cost mining companies billions in lost production and revenue. But what stood out to me was not only the scale of the operational disruption. It was the recognition afterwards that relationships between companies, employees, unions, communities and government had broken down long before production stopped. 

The Turkana story I referred to earlier follows a similar pattern, although over a much shorter period and in relation to the external community rather than employees. Tensions over employment opportunities for the local community, local benefits, procurement opportunities, and expectations regarding oil development contributed to protests, operational disruptions, and delays.

You may have the legal, technical, and financial capacity to run the business, but its success will depend on how well these elements work within a web of relationships, expectations, and competing interests.

In both cases, the operational and financial losses were visible. The relationship failures that contributed to them had been building quietly for much longer.

There is an old observation, part science and part parable, about a frog placed in a pot of cold water that is heated slowly. Because the temperature rises gradually, the frog never registers the danger. By the time the water is boiling, it is too late for the frog to jump.

Business crises often happen in exactly the same way. Not in a single dramatic moment, but little by little: 

• A supplier relationship that becomes transactional, then tense, then hostile. 

• A workforce that stops raising concerns because nobody acted on the last ones.

• A community that moves from mild frustration to organised resistance. 

No individual signal feels urgent enough to act on. And then, suddenly, the water is far too hot. 

Where an African SME Leader Should Start with the “S”.

Many SMEs operate in deeply interconnected environments where employees are also customers or community members; suppliers are small family businesses; and communities depend on these businesses for livelihoods and stability. Studies across the continent show that, alongside issues like power shortages and limited access to capital, relationship-driven challenges, from staff turnover to community tensions, are a major brake on SME growth. 1,2.

In those environments, sustainability is not a communications exercise. It is relationship management, risk management and, often, business survival.

However, one of the most common mistakes businesses make when developing a sustainability or ESG strategy is starting with frameworks and reporting before asking and answering a simpler question:

Who actually matters to our business? 

And then, going a step further, because not everyone who matters to your business has the same degree of influence, not every issue deserves the same level of attention, and not every loud voice reflects the most material risk or opportunity.

In Simplifying Sustainability: A Handbook for African SME Leaders, we describe this as an essential foundation for any practical sustainability strategy: knowing who matters to your business and what matters to them. We laid out a simple yet structured approach to answering that question, that improves the quality of decision-making. The key steps are:

• Identify broadly;

• Prioritise deliberately; and

• Engage proportionately

Once you have done this work, ESG stops being abstract. 

For example,

• Worker welfare becomes a productivity issue.

• Community trust becomes an operational continuity issue.

• Governance becomes an access-to-capital issue.

And, importantly for SMEs with limited time and resources, identifying and prioritising your stakeholders helps you focus on what matters most to your business; it avoids wasting scarce resources on fashionable ESG initiatives that have little relevance to your actual business model or operating context.

The Handbook provides more details on developing a strategy to manage the “S” aspects of your business. If you are not ready for the full exercise, you can begin with a simple three-step exercise. Give yourself a 12-week window. 

Step 1. Think about one relationship that your business depends on to run smoothly and successfully, and where you sense there may be tensions building over a social performance issue. It could be with employees, a key supplier or distributor, a community, a regulator, a logistics provider, or a funder or investor. 

Step 2. Have a direct conversation before the problem escalates. Ask them what is working and what is not, and what “better” would look like for them. Ask, listen, acknowledge and explain where necessary without being defensive.

Step 3. Put in place a realistic plan to address the issue and communicate it to them. You may not be able to fix the problem immediately, but at least having a plan and sharing it is a good first step. 

For example,

• If you cannot pay your suppliers all that is due immediately, have a conversation about a realistic payment plan and stick to it. 

• Give employees and others outside of your business a simple and accessible way to raise grievances, with a process for responding as quickly as possible; 

• Put in place a structured and transparent remuneration and promotion process for your employees to reduce perceptions of unfairness.

These often look small or may feel like extra costs until you compare them to the cost of a strike, low productivity, a regulatory sanction, a reputational crisis or the loss of a key customer. 

By the end of the 12-week period, you should have identified a source of friction affecting your business, put in place a plan to address it and communicated the plan to the people it concerns. You should also be able to measure improvements such as fewer angry calls, more employee engagement and smoother operations.

A Final Word

The warning signs are almost always there. The discipline is learning to read them before the damage becomes irreversible and building the kind of relationships where people tell you the truth early.

If you found this useful and would like to know more about practical approaches to ESG, please do get in touch. Simplifying Sustainability: A Handbook for African SME Leaders covers this in more detail, and I run tailored ESG Masterclasses for leadership teams and Boards.

Notes:

1. Muriithi, S. (2017). African Small and Medium Enterprises (SMEs): Contributions, Challenges and Solutions. European Journal of Research and Reflection in Management Sciences, 5(1), 36-48.

2. An Investigation into the Challenges to SMEs Growth in Africa, International Journal of Economics, Commerce and Management (2022)