The Board's responsibility on stakeholder governance
May 3, 2021
Our key takeaway: Boards are tasked with the responsibility to ensure their organisation’s long-term viability—and fulfilling this role can’t be done without understanding stakeholder perspectives and bringing their voices to the table.
The Australian Institute of Company Directors (AICD) published Elevating Stakeholder Voices to the Board, a guide for board directors to “identify and elevate stakeholder voices to the board.” The guide provides a foundational understanding of stakeholder engagement and why it matters, plus practical steps to elevate these voices:
The expectation of boards is to create a culture that puts stakeholders at the centre. According to AICD, “the board should create a culture that puts stakeholders at the centre, ensure it has access to accurate and, where necessary, independent information about stakeholder perspectives and engage with key stakeholders directly, as appropriate.” “Stakeholder governance requires organisations to identify, engage with and understand stakeholder perspectives on key issues, and then reflect on how these perspectives should be considered in decision making.” There is a broad range of stakeholders that a board should consider, from customers, employees and suppliers, to vulnerable groups like indigenous peoples, and the broader community—“ranging from local charities and community groups to local business and government authorities, as well as communities of interest.”
Stakeholder governance is now viewed as key to a company’s viability. In short, “[i]f done well, stakeholder governance strengthens an organisation and will promote its long-term success to and for the benefit of shareholders and stakeholders alike. Poor stakeholder governance, by contrast, will typically increase the organisation’s financial and non-financial risk profile and may precipitate major reputational damage.” As the body responsible for “governance, management and strategic direction of the organisation,” the board has a responsibility to act in the best interests of both the company and of its stakeholders beyond shareholders: “It is increasingly recognised … that the best interests of an organisation cannot be isolated from the interests of its stakeholders, including employees, customers, suppliers and the community.”
Putting stakeholders at the centre entails integrating the hallmarks of good stakeholder governance. Elements of a strong approach include “organisational openness for two-way dialogue rather than an attempt to ‘communicate’ through tension points. Relationships must be enduring and mutually respectful, rather than ad hoc and transactional.” Three hallmarks of good stakeholder governance are that (1) directors should undertake purposeful inquiry into the broader environment in which the company operates, (2) boards should look for ways to build authentic and sustained engagement with stakeholders and make it easy for them to engage and (3) stakeholder consultation should be embedded in an organisation’s strategy.