29 January 2017 by Peter Swabey
The views of stakeholders need to be heard, says Peter Swabey
My last article was taken up with the Government’s Green Paper on Corporate Governance Reform and this remains a major focus as we look to see how we, as the professional body for governance, can demonstrate our grasp of the key issues and make a positive contribution to the debate.
Although the focus of the Green Paper is avowedly ‘corporate’ governance, there is a lot that can be learned from the experience of other sectors in terms of how some potential proposals work and, perhaps, how some do not. Certainly, many of the issues that the paper identifies are not unique to companies – we would be very keen to hear your views so please do contact us
One of the central themes of the Green Paper was around strengthening the employee, customer and wider stakeholder voice. There have been predictable demands for workers on boards but, perhaps more importantly, there is also a focus on the lack of trust in business. Again, this is not just a corporate issue – charities, for example, have also seen a much greater suspicion of how they work than in the past.
One of the key themes that influences how organisations are seen externally is the perception of their culture, because ‘how we do things round here’ and how we are perceived to do things is so important. We held a workshop last year to examine some of the indicators of culture in charities and will be sharing output from this once it has been agreed by the participants.
It is a busy time for governance in charities. A new governance code is being developed and we are expecting both a House of Lords review of the sector and the Law Commission’s recommendations on charity law and administration.
We agree with the Government that the views of stakeholders need to be heard by boards. Organisations of all kinds benefit from having constructive engagement with their employees, customers and other stakeholders, and from having a broad range of perspectives around the boardroom table. Capitalising on that benefit cannot begin too soon. Many organisations already do this, but how do they do so, and might they be able to do so more effectively?
Answering these questions is the objective of a new initiative from ICSA: The Governance Institute and the Investment Association, through which companies and investors will work together to identify existing good practice and produce practical guidance to help those companies that need support to understand the views of their employees and other stakeholders. They will then be able to factor these into their decision making and in turn benefit from the experience and example of those companies which have been more successful in this area.
There are a variety of different approaches to stakeholder engagement for companies to consider and there will be no ‘one size fits all’ solution as every company is different, as is every company’s stakeholder demography. What is important, and what works well, for one company may not be important or work well for another, but this guidance will consider a variety of approaches, summarising the issues to be addressed and the practical steps to be taken.
These will include: the different approaches acknowledged in the Government’s Green Paper on corporate governance reform; the ways companies can identify non-executive directors with relevant stakeholder experience; and how training and induction can be used to enhance directors’ understanding of their duties and the interests of, and impact on, different stakeholders.
We will also look at the processes by which boards can receive the views of their key stakeholders. Options identified in the Green Paper, which the guidance will discuss in more detail, include setting up ‘stakeholder committees’ and giving individual directors and/or board committees designated responsibility for engaging with key stakeholders.
Finally, we will look at how companies can effectively demonstrate that they do take appropriate account of stakeholder views through the reporting process.