ICSA: The Governance Institute has published new guidance today on how companies can make sure that the stakeholder voice is heard in the boardroom.
Released jointly with the Investment Association (IA), the guidance is addressed to all companies, whether listed or not, and contains some principles that we believe are relevant to other organisations as well.
During the process of producing the guidance, we and the IA spoke to many companies, investors, stakeholders, representative bodies and NGOs. They responded positively to our requests for advice and views, and we are grateful to all of them for their time and insight.
Although the guidance has the ICSA and IA logos on the front and back covers, what is between reflects the collective wisdom of all those we met.
We first announced our intention to issue joint guidance in January, in our respective responses to the Government’s green paper on corporate governance reform. There were two related reasons we decided to carry out this work.
The first was an acknowledgement that the Government was right to highlight the relationship between business, its stakeholders and the society in which it operates as an issue and put it high on their agenda.
It was clear from talking to companies that they recognised it needed to be higher on their agenda, as did many of their shareholders, whose interests are also best served if the company has the support of the other stakeholders needed to help secure its long-term success.
It was also clear that many companies, including those that were already making concerted efforts to engage meaningfully with their stakeholders, were looking for some assistance.
The second reason for the work was that, while welcoming the debate the Government initiated, we were keen that it should not be defined purely as being about a choice between the specific options put forward in the green paper.
That is not to denigrate those options in any way. All of them can be a useful and effective means of ensuring that the board’s decisions are informed by an understanding of the impact on stakeholders, and all are covered in the guidance. But they are not the only ways of doing so and, importantly, their impact will be limited unless other actions are also considered.
A worker-director who is isolated and unsupported in the boardroom; a non-executive director who is given responsibility for a stakeholder group they know nothing about; or an advisory council whose advice never reaches the board – none of these will provide anything other than window dressing.
On the other hand, directors who receive proper support and training in their new role, and advisory groups that enjoy genuine access and influence, can make a positive difference.
This is why the guidance encourages companies to think about these issues in a systematic way. It prompts boards to ask themselves a series of questions, including:
- Do we know who our priority stakeholders are?
- Do we have the knowledge around the board table to understand the impact our decisions may have on them?
- How do we manage the board’s time to ensure stakeholder issues receive the necessary attention?
- What information do we need to have that discussion, and how do we get it?
- How do we demonstrate to stakeholders – and shareholders – that we have been listening?
The answers to these questions will differ from company to company. So while the guidance includes illustrative examples of how some companies have answered them, and discusses various approaches, it does not attempt to prescribe the right solution.
That is a conversation that only the board can have. We would encourage them to do so.
Chris Hodge FCIS is policy advisor at ICSA: The Governance Institute