It seems almost bizarre to suggest that effective engagement with stakeholders is a key element of best practice governance but recent disclosures to emerge from the Royal Commission into banking and the draft fourth edition of the ASX’s governance principles are a reminder that, well, sometimes we need reminding…
The Royal Commission is a stark reminder of the importance of the appropriate balance between the rights of the shareholders and other stakeholders in the company such as customers.
"The Royal Commission is a stark reminder of the importance of the appropriate balance between the rights of the shareholders and other stakeholders in the company such as customers". Click here https://t.co/1uUUfHv1iG to read our latest blog.
— Governance Matters (@GovernanceMatt) July 16, 2018
The ASX’s draft fourth edition, including mooted changes to Principle 3 which will require a board to consider the culture of the organisation and its social impact, reinforces this notion. As soon as the board is expected to assume responsibility for culture and social impact, it must critically examine its major stakeholders and develop an appropriate mechanism to engage with these groups in order to develop a trusted relationship, to the point where, if member of the public asked individuals within a stakeholder group what they thought of company X, they’d say “really good”.
In recent board performance evaluations we’ve conducted for Governance Matters’ clients, stakeholder engagement is now a top priority. And as boards find they’re not performing as well as they should, they’re calling for a robust and approved stakeholder engagement plan. But of course, that requires the board to know who the major stakeholders are.
Depending on the nature of the entity, the key stakeholder groups will change. In a statutory authority, a major stakeholder would be the Minister and the Department. Similarly, a company in a highly regulated space such as financial services, a major stakeholder will be the regulator. Then we need to consider customers and staff, community or activist groups and, if it’s an industry or sector the media likes to comment on, the media, too.
And while there is no magical off-the-shelf solution, it is clear that the board must have mechanisms to gain a deep understanding of what its major stakeholder groups think about the entity. Three are critical: we need a mechanism to listen, a mechanism to act and a mechanism to communicate.
The mechanisms, too, will be many and varied. The establishment of a community advisory group might be one solution; a staff and customer satisfaction survey another. And where the relationship is super critical, such as with a government Minister, it could – and should – be face-to-face interaction.
I’m reminded of a book I once read entitled ‘Influence: The Psychology of Persuasion’ which shared research into characteristics that will influence one person in another’s favour.
‘Liking’ was high on the list, and one of the primary reasons for liking someone is propinquity.
Yes, an email is easy and convenient but it can never achieve what meeting someone, touching the flesh and talking to them does. Just ask anyone who has ever dealt with a Minister and I’m sure they will agree that there is enormous power in taking that person out to a site, to see something.
Whatever your approach, the key to engaging with stakeholders is to do so engagingly!
Until next time,