Summary

Boards: maximise long-term value through meaningful stakeholder engagement

Anna Triponel

May 27, 2022
Our key takeaway: Board expertise on human rights issues, especially stakeholder engagement, is needed as a matter of both management of risks to the business and management of risks to people. This imperative is pushed not only by the twin drivers of the climate change agenda and societal expectations for how businesses operate, but also by the coming slate of new human rights-related legislation on the horizon. Effectively steering companies to meet these expectations requires boards to understand affected stakeholders—those individuals and groups who could be most impacted by a company’s activities, business relationships and value chain—and to respond to their concerns. But boards are not yet future-fit; getting up to speed requires boards to understand who affected stakeholders are, ensure the effectiveness of engagement and grievance mechanisms, build knowledge and capacity to address human rights issues, and continually monitor and publicly report on efforts. 

The World Economic Forum’s Global Future Council on Human Rights released ‘Engaging Affected Stakeholders: The Emerging Duties of Board Members’, which “provides advice and information to support boards in managing their relations with affected stakeholders.” The findings of the report, along with a supplementary guidance note for boards, are drawn from research and interviews with senior business leaders and civil society representatives between 2020-2022.

  • The board’s role in stakeholder engagement: The report found that the overall human rights competence of boards is limited: “While a small number of boards have members who are attuned to ESG opportunities, material ESG risks demand integration of the ESG parameters to the company’s vision and business strategy, yet many engage only on compliance, ethics and direct risks to their business.” The report points out that, “to ensure that companies maximize long-term value for all stakeholders, including acting in a manner that is consistent with well-established human rights principles, boards need to enhance their understanding of how those people most affected by a company’s operations, supply chains, products and services may be affected and the human rights responsibilities this involves.” Effective stakeholder engagement and management of other human rights topics is also a growing expectation of the law, speeding the imperative for boards to understand how their companies deal with these issues. At the same time, both business leaders and civil society representatives agreed that the actual task of stakeholder engagement should sit with executive leaders and functional teams, with oversight and guidance from the board. Regardless, this requires boards to understand the stakeholder landscape and human rights issues as well as who their stakeholders are. This understanding is still limited in many companies: “Though companies report mapping ‘affected stakeholders’ in their operations and supply chains, there remains ambiguity about the precise definition of ‘affected stakeholders’ and ‘rights-holders’. These are most often understood as being limited to individuals employed by the company directly or indirectly and are rarely focused on the wider communities that may be affected by company activities, except among businesses in the extractives industry.” 
  • Five questions for boards to ask themselves: According to the report, “a board should ask these five questions to determine how well it responds to the interests of those most affected by company operations: 1. Does the company know who its affected stakeholders are? 2. Does the company have the appropriate mechanisms in place to understand the potential adverse human rights impacts on affected stakeholders and how to respond appropriately? 3. Is the board sufficiently engaged in overseeing these mechanisms and ensuring their effectiveness? 4. Does the board have the right skills, experience and knowledge to undertake these tasks? 5. Does the board have the right monitoring and review mechanisms in place to undertake these tasks?” 
  • Five steps for boards to take: The guidance note outlines key steps for boards to take in order to strengthen their company’s approach to engaging effectively with affected stakeholders, as well as their own understanding of the topic. These include: “1. Be clear about who the company’s affected stakeholders are. 2. Decide what kinds of engagement mechanism might be relevant to identify, assess and address risks to, and impacts on, the human rights of affected stakeholders. 3. Establish the correct level of board engagement and oversight. 4. Ensure the board has the necessary skills, knowledge, diversity and experience. 5. Monitor, evaluate and disclose progress.”

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