Stakeholder engagement – a key aspect to Integrated Reporting – is broadly recognised as being crucial to strategic business and reporting decisions. The fourth iteration of the King Report on Corporate Governance, King IV, was released in November 2016. King IV purposes to bring about greater stakeholder inclusion into corporate decision making – it notes that company governing bodies should provide strategic direction for the organisation’s stakeholder relations policy and action plans.
Principle 16 states that “In the execution of its governance role and responsibilities, the governing body should adopt a stakeholder-inclusive position that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time”. Stakeholder inclusivity means that the board considers other stakeholders not only as instruments to serve the interests of shareholders, but having intrinsic value for decision-making in the best interests of the company over time – the interests of stakeholders and shareholders are interdependent. In order to know and understand the legitimate and reasonable needs, interests and expectations of an organisation’s major stakeholders, management needs an ongoing relationship with these stakeholders.
As such, King IV recommends that the governing body should do the following:
- Set the direction for how stakeholder relationships should be approached and conducted
- Approve stakeholder engagement policy
- Have stakeholder relationships as a recurring item on its agenda
- Exercise ongoing oversight of stakeholder relationship management to ensure that it results in:
- Methodologies for identifying individual stakeholders and stakeholder groupings
- Determination of material stakeholders
- Management of stakeholder risk
- Formal mechanisms for engagement and communication with stakeholders
- Measurement of the quality of material stakeholder relationships and the appropriate responses to outcomes
The panel agreed that the quality of stakeholder engagement varies greatly across companies. Good governance and leadership, as well as sufficient resources are required to ensure robust stakeholder engagement processes. However, many company boards are not involved in stakeholder engagement. The board must engage with the stakeholder engagement function to ensure that sufficient and effective engagement is taking place. Furthermore, the stakeholder engagement function should be closely aligned to the risk function.
Many organisations do not want to engage due to the complexity of stakeholder issues. For example, companies may have concerns that if they speak out against government, they may lose government contracts. Nonetheless, it was agreed that responsible lobbying and shareholder activism would form an important part of stakeholder engagement going forward.
Stakeholder awareness of company issues and impacts is increasing. Social media means that information (good and bad) is available to stakeholders immediately. Companies need to be proactive and have good engagement processes in place to address issues through social media. Enduring long term relationships need to be formed with stakeholders.
The panel agreed that companies need to temper stakeholder expectations by being more transparent and providing a balanced view of operations by explaining both what they have done well and what has failed. Companies should show stakeholders that they are thinking deeply about stakeholder concerns and how to address them.
It was noted that many stakeholders would like to engage with large companies, but do not know how to do this. The stakeholder engagement processes of the company should create the necessary platforms for stakeholders to discuss their concerns with the company.
King IV was seen as a step in the right direction to assist companies to understand the value of stakeholder engagement and input. The shift to improved stakeholder engagement will take time, however, the fact that King IV clearly articulates the role of board was encouraging. This should mean that individual staff members to not responsible for driving stakeholder engagement – this role will now be the responsibility of the board.
EY Trialogue Sustainability Forums are held frequently throughout the year and bring together sustainability practitioners to discuss a range of topics. This post is based on a EY Trialogue Sustainability Forum held on 12 September 2016. The following panelists participated in the discussion:
Nilesh Moodley – Founder – Sustainability Synapse
Mr. Moodley is a sustainability professional with specialised interest in using sustainability strategy as a value-add to industry and broader society across local and regional scales. He has worked in the sustainability divisions of EY, Liberty and AngloGold Ashanti and offers a wide range of knowledge around sustainability issues.
Sibonile Dube – Corporate Affairs Director – Unilever South Africa
Sibonile has over 15 years’ experience working in Corporate Communications. She has held various positions within multinational companies in diverse industries amongst them Ford Motor Company and Nokia. Her knowledge of the African markets was gained during her tenure at Blue Financial Services where she was in charge of the Public Relations and Communications portfolio of 14 countries for the Micro-Finance Institution.
Karen Ireton – Head – IoDSA Sustainable Development Forum
Karen has a wide range of experience in the sustainability field and extensive knowledge around stakeholder engagement. Her focus is on embedding and integrating sustainable development into daily business practice, promoting positive change: she has deep experience in the energy, mining and financial services sectors.