How does your organization go about making important policy decisions? When called on to make a tough value judgment, especially in the face of harsh criticism from others , would your organization create a framework for ongoing dialogue with external stakeholders —including critics —in order to gather all the information needed to make the best possible policy decision and to implement that decision as effectively as possible?

The True Meaning of Stakeholder Engagement

Unfortunately, the overwhelming majority of Japanese corporations seem to believe that they are engaging with stakeholders simply by creating a chance for outside experts to air their lofty views on social or consumer issues. Speakers at such forums are usually limited to scholars and a few representatives of nonprofit organizations, who explain their positions in the abstract. Management listens politely to their opinions , and that is as far as it goes. Most Japanese companies treat such dialogue as something utterly divorced from their internal decision-making process, especially where important policy matters are concerned.

In this connection, it behooves us to recall that ISO 26000, the international guidelines on organizational social responsibilities, defines stakeholder engagement as “activity undertaken to create opportunities for dialogue between an organization and one or more of its stakeholders, with the aim of providing an informed basis for the organization’s decisions ” (my italics).

To be clear, then, it is not enough to go through the motions of sitting down with stakeholders and asking their opinions. Engagement is something done for the purpose of determining “how best to increase the beneficial impacts of the organization ’ s decisions and activities and how to lessen any adverse impact ” (ISO 26000 , 5.3.3 Stakeholder Engagement). The idea is to ensure better policies and better implementation by involving external stakeholders at the stage of deliberation, before decisions are reached, not after they have been made by a small group of executives with little or no input from outside directors.

The quality of a company’s decision - making and implementation becomes all the more critical when it is called on to make an important decision or deal with a serious problem. Speed may be of the essence, but so is the breadth and depth of the decision makers’ perspective and the care and efficacy with which they put a decision into effect. This is why companies need to engage routinely in intensive, wide-ranging dialogue with stakeholders—including critics—who have something to contribute to the quality of management’s decisions and their implementation. However lively the discussion with outside “experts” and noted authorities, and however warmly those experts might praise the company and its management, such dialogue is meaningless as stakeholder engagement if it does not contribute to the quality of decision - making and implementation.

There is one major corporation in Japan that has actively involved outside stakeholders through a series of meaningful dialogues in preparation for a major policy decision. When Shiseido was deliberating the best way to proceed with the phase-out of animal testing in the development of new product ingredients, it held a series of six roundtable discussions with the participation of some of the company’s harshest critics. The first five of those sessions, spanning a period of two years, laid the foundation for a major policy decision by Shiseido by providing genuine opportunities for dialogue and input. In the following, I provide an overview of the progress of the meetings, which I had the good fortune to moderate.

Shiseido’s Dilemma

The European Union began phasing out animal testing on cosmetic products and their ingredients under the Cosmetics Directive of March 2003 (later replaced with the EU Cosmetics Regulation). In March 2009 it banned testing on all finished products and ingredients inside the EU. At the same time, it banned the sale of cosmetics, regardless of their origin, that used animal-tested ingredients, although exception s were made for certain types of toxicity testing for which validated alternatives were un available. Under the directive’s timetable, the marketing ban was to be extended in March 2013 to cover all types of animal testing.

In China, meanwhile, submission of animal testing data is still required for approval of imported cosmetics. The Japanese government requires a certain amount of animal testing to verify the safety of new ingredients used in so-called “quasi-drugs,” which include a wide range of hair tonics and skin preparations treated as cosmetics in other countries. Amid conflicting regulations and intense market competition, Shiseido faced a difficult dilemma on how to ensure safety while continuing to make progress with the development of new products.

In March 2010, Shiseido announced its intent to phase out animal testing for general cosmetics (excluding quasi-drugs). The goal, it said, was to eliminate animal testing in the development of its cosmetic products, eliminating in-house testing by the end of March 2011 and testing in external facilities by 2013. The next step was to flesh out a plan for achieving those goals.

For this purpose, Shiseido decided to hold a series of roundtable discussions with representatives of key external stakeholder groups. ^[1] Session 1 of the roundtable on ending animal testing of cosmetic ingredients was held in June 2010 with the participation of seven outside participants from various sectors, including the scientific community (toxicology and the study of alternative testing methods), animal-welfare and animal-rights groups, and the media. The meeting proceeded as follows.

First, representatives of Shiseido provided a detailed report on the progress being made in developing and validating alternatives to animal testing for safety assurance, as well as regulatory trends in major world markets. Next, each of the invited participants presented questions and opinions grounded in that stakeholder’s specialty or focus, with Shiseido representatives responding to each in turn. Finally, the moderator (myself) provided a summary of the day’s discussion and suggested points and directions for subsequent discussion.

At Session 2, held on November 2010, participation was extended to other stakeholders, including representatives of consumer advocacy groups and researchers involved in CSR studies. After an update on Shiseido’s progress and regulatory developments in Japan and abroad, the participants agreed on the need to prioritize four tasks: supporting the development and validation of practicable alternatives to animal testing, pressing for change by other cosmetics companies, lobbying the government, and educating consumers.

At Session 3, held in June 2011, Shiseido announced its termination of in-house animal testing and closure of company testing facilities, as well as its decision to place external stakeholders on the company’s advisory committee on animal testing, following a suggestion put forth at Session 2. Participants also heard a progress report on efforts to gain official approval from regulatory authorities for nonanimal alternatives. They then shared ideas on ways to accelerate acceptance of these methods by agencies and consumers and to encourage other cosmetics manufacturers to follow Shiseido’s lead.

When Session 4 was held in May 2012, it was still unclear whether the EU would adhere to the timetable set forth in the Cosmetics Directive, which called for a total marketing ban on animal-tested products effective March 2013. Shiseido had nonetheless pushed ahead with efforts to develop and validate alternatives to animal testing and had continued to lobby regulatory authorities in Japan and around the world for acceptance of data from such methods. Moreover, the Ministry of Health, Labor, and Welfare had issued guidelines on the use of alternatives to animal testing. Session 4 featured reports on these developments, as well as activities by stakeholder groups, including a meeting between animal welfare activists , agency officials , and Diet members.

From Dialogue to Action: Shiseido Goes a Step Further

This progressively deepening dialogue culminated with Session 5 of the roundtable, held in January 2013.

Session 5 came at a critical moment for Shiseido. Because it was proving difficult to perfect nonanimal alternatives for the full range of safety testing, many had expected the EU to delay or modify its plan to ban all cosmetics with animal-tested ingredients beginning in March 2013. By January 2013, however, it was clear that the ban would become an EU regulation, legally binding on all members, by July 2013. Yet China still required safety data based on animal testing for approval of both general and special-use cosmetics (the equivalent of Japan’s quasi-drugs). How should Shiseido proceed, given its commitment to eliminate animal testing by 2013?

On February 28, following the January roundtable meeting, Shiseido’s board of directors reached a final decision: The company would officially eliminate animal testing for both cosmetics and quasi-drugs from April 2013. ^[2]

Multinational companies, and particularly industry leaders, are obliged to adapt their policies to the changing cultural attitudes, practices, and regulatory requirements of countries around the world. Faced with such challenges, should local managers and top executives decide on a course of action among themselves? Or should they build a broader foundation for their decision s —and lobbying efforts targeting lawmakers and regulators—by soliciting the input of outside experts and even fiercely critical NPOs and NGOs?

By taking the latter path and proactively opening the process to external stakeholders, management can forge alliances that can offer valuable support at critical junctures. In the event of an unfortunate accident or incident, such alliances can spell the difference between a relentless storm of criticism and an attitude of forbearance by those who appreciate the company’s history of doing the right thing. The basic rule is, the more difficult the problem, the more important it is to involve outsiders in the deliberation and decision-making process in order to reach an appropriate decision and implement it effectively and efficiently.

Shiseido’s executives realized that such stakeholder engagement would not immediately boost their brand image, let alone business results. They are to be applauded for taking the long view by creating opportunities for meaningful and extended dialogue and making that dialogue a cornerstone of corporate decision making on a major policy issue.

Chronology of Shiseido’s Decision on Animal Testing

^[1] Reports (in Japanese) on each of the six roundtable meetings can be accessed at http://www.shiseidogroup.jp/csr/communication/canference/ .

^[2] See http://www.shiseidogroup.jp/releimg/2133-j.pdf (in Japanese).