Social Contract – an agreement, governing the behaviour of individuals and organisations. In our view the governance framework is the Board’s social contract with its stakeholders and is an articulation of accountability, purpose, culture and operational effectiveness.
Executive Summary:
- Effective communication is the key to good governance
- Stakeholders are those who are likely to be affected directly or indirectly by, or whose actions can affect, the operations of an organisation
- Engagement by the CFO is particularly important around the release of financial results and ahead of the organisation’s AGM.
- Stakeholder trust is a vital ingredient for sustainable long-term growth.
- Making the stakeholder governance a core part of the organisation’s strategy strengthens the business and optimises the success of the organisation to the benefit of all stakeholders, including its shareholders.
Who are our stakeholders and what is stakeholder engagement?
Stakeholders can be defined as those who are likely to be affected directly or indirectly by, or whose actions can affect, the operations of an organisation. For example, these could be your investors/owners/shareholders, employees, customers/clients and/or the local community.
Stakeholder engagement on the other hand is the process through which an organisation engages with relevant stakeholders to understand their expectations about issues such as governance, strategy, organisational policies, practices, and performance.
Why should the board act and how?
The reason is twofold. Firstly, effective stakeholder engagement is critical to developing strong relationships and building trust. Stakeholder trust is a vital ingredient for sustainable long-term growth. Making the process a core part of an organisation’s strategy will strengthen the business and optimise its success to the benefit of all stakeholders, including its shareholders.
Secondly, one of the primary statutory responsibilities of a board is to ensure that they understand the needs and expectations of the organisation’s stakeholders and engage with them regularly on the issues most pertinent to them (as set out in section 172 of the Companies Act; to promote the success of the organisation). To do this an organisation needs to identify its key stakeholder groups (known as ‘stakeholder mapping’) and implement an appropriate engagement plan for each group.
Who’s responsibility is it?
The role of the Chief Financial Officer (CFO) is often extended to include the needs and expectations of internal and external stakeholders and to establish better communications to articulate the organisation’s performance and strategy in a way that all stakeholders will understand.
The Governance Professional also plays a key role in supporting the CFO but also work autonomously in stakeholder governance and engagement as they act as the conscience of the organisation. Governance Professionals are both independent and aware of both the board and executive discussions and have ease of access to both to raise concerns.
Who determines the scope of stakeholder engagement?
Boards should ensure that appropriate engagement with key stakeholders is taking place, including determining which stakeholders they need to engage with directly, as opposed to relying solely on publicly released information from the organisation, and to keep this under regular review. Engagement by the CFO is particularly important around the release of financial results and ahead of the organisation’s AGM.
Getting started…
Stakeholder mapping is the first step to stakeholder governance and engagement, it involves identifying the organisation’s key stakeholder groups and the issues or activities with the most significant impact on them. It is important that the groups identified as key stakeholders are kept under regular review to ensure that engagement remains appropriate for the audience. Output from these engagements should then be used to inform all board decision making.
Making it work for you…
Adopting the most appropriate mechanism to engage with each stakeholder group is vital. It should be flexible and designed with the convenience of the stakeholder in mind but also be appropriate for the organisation itself. A method that enhances stakeholder participation is however the optimum method.
Good communication
Effective communication is the key to good governance. It means being open and honest and listening to the views of the organisation’s key stakeholders. It is important for stakeholders to be consulted when a key decision is being taken that may affect them. CFOs need to be able to speak convincingly and persuasively articulate the rationale behind the board’s decision-making before, during and after it has been made.
The approach, dialogue and language used should be tailored to the audience being engaged with. CFO’s may need consider adapting their communication and leadership style depending on the stakeholder, the situation, and the challenge.
Conclusion
Effective stakeholder engagement and governance help ensure that a organisation is able to make informed decisions that are in the best interests of all stakeholders, rather than just focusing on short-term profits or the interests of a select few. By engaging with stakeholders early and having strong governance structures in place, a company can build trust and credibility, which can lead to long-term success. Additionally, stakeholder engagement and governance can help a company identify and address potential issues before they become serious problems, which can help to minimise risk and protect the company’s reputation. Overall, effective stakeholder engagement and governance are essential for all organisations seeking long-term success.
