Research & Strategy

By Eleonora Puglisi - Research and Strategy Consultant - 16 Oct 2017

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The role of corporates in rebuilding trust in the UK economy has never been more prominent than during the last year. At the beginning of 2017 we discussed the importance of strong governance and culture reporting in our ESG whitepaper; however, in the last couple of months Parliament, the FRC and the EU have all put forward amendments, regulations and code changes to ensure that corporate governance and corporate reporting is more focused on the issues of stakeholders and how they better inform the purpose, vision and values of the business.

Following corporate governance reform from the Government and the FRC’s updates to the strategic report, both of which focus on putting wider issues onto the board agenda, the Institute of Chartered Secretaries and Administrators and the Investment Association have joined forces to provide guidance on stakeholder engagement in board decision-making.

The guidance in brief

The guidance provides several principles to help directors take into consideration wider stakeholders when carrying out their duty to promote the success of the company under Section 172 of the Companies Act.

To do this successfully, companies need to identify their key stakeholders and appoint directors who have the expertise and knowledge to represent these groups in the boardroom. To ensure these directors can carry out their roles and responsibilities in the best way possible, it is paramount that companies develop a formal and tailored induction programme to ensure sound knowledge of the company, including participating in activities such as senior management meetings and site visits.

The impact on stakeholders should also be considered in all strategy and policy papers requiring decisions from the board and enough time should be allocated to address such matters.

But what does this mean for the annual report?

The annual report is the ideal platform from which all of this valuable information can be shared with investors and wider stakeholders.

Business model and strategy

Although stakeholder groups differ, there are a number of ways in which companies can demonstrate how they consider and engage with their stakeholders. For example, they can highlight stakeholder value creation in the business model. An example of this can be found here:

Marshalls Annual Report 2016: Pages 6 & 7

Just Eat Annual Report 2016: Pages 14 & 15

In addition, companies can also include how stakeholder relationships are built and maintained such as those with employees, suppliers and government bodies. Stakeholder engagement should be an important part of any company’s strategic objectives. An example of this can be found here:

Petra Diamonds Annual Report 2016: Pages 16 & 17

Materiality

As part of the identification and engagement process, companies have now started carrying out materiality assessments. These are used to identify specific and relevant “material” issues for each company and are designed to highlight how these can affect the success of the business.The companies’ responses to the feedback of these assessments as well as the impact certain groups have on the business, can be fed into companies’ risk management. As this requires a continuous flow of information across the company, it is beneficial to demonstrate how senior managers’ expertise and knowledge of companies’ stakeholders fundamentally provide the board with a clear overview of the company’s engagement. An example of this can be found here:

Pearson Annual Report 2016: Pages 21 & 22

Corporate governance

The governance report can evidence stakeholder engagement by featuring information on site visits, stakeholder meetings and relations with wider stakeholders beyond just shareholders. An example of this can be found here:

Petra Diamonds Annual Report 2016: Page 61

M&S Annual Report 2016: Pages 44 & 45

Wider channels

Although shareholders are the primary audience for the annual report, companies should consider other forms of reporting and feedback mechanisms to reach wider stakeholders. Corporate websites, social media and sustainability reports provide increasing opportunities to address specific issues that are relevant to workforces, communities, regulatory bodies and suppliers and they can address further information that is not considered material to the annual report.

In summary

The guidance notes that, “if taken seriously, stakeholder engagement will strengthen the business and promote its long-term success to the benefit of stakeholders and shareholders”. The importance of these corporate reforms and the impact they will have on the decisions of investors is not to be under-estimated and we hope that the above tips will be helpful. Done well, these will help demonstrate clear stakeholder engagement to investors through process and infrastructure, positively affecting board decisions and resulting in companies who are more closely aligned to their stakeholders and better placed for future success.

For more information on how we can help you deliver successful corporate communications via print, digital or video, please contact rochelle.ohagan@design-portfolio.co.uk.