"Stakeholder engagement keeps evolving and companies are diving deeper into engagement, using the findings in more innovative ways."
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2023 will mark just over four years since companies began reporting more clearly on Section 172 requirements and almost three years since our first Section 172 research report… it’s scary how quickly time is going!
Despite the lengthy time period, nothing has stood still. Stakeholder engagement keeps evolving and companies are diving deeper into engagement, using the findings in more innovative ways. However, some companies are still struggling to get the basics right. So, what should we expect to see in 2023?
What is Section 172 and stakeholder engagement?
Section 172 of the Companies Act 2006 states a director’s duty is to promote the success of the company. This includes the consideration of employee interests, the impact of a company’s operations on the community and environment and fostering positive business relations with suppliers and customers. As a result, reporting on stakeholder engagement has become a key element of the strategic report.
Engagement provides an opportunity for stakeholders to express their views and priorities, and raise any concerns. This, in turn, enables companies to take on feedback and improve their decision making to accommodate these interests and address any issues. This benefits both parties and ensures an effective two-way dialogue, enhancing the company’s value creation for stakeholders.
What does good look like?
In line with trends in best practice and the recommendations set out by the Financial Reporting Council (FRC) in its recent Review of Corporate Governance Reporting, we believe the following components will be prominent in stakeholder engagement reporting in 2023.
Firstly, the FRC emphasised that effective engagement is centred around clarity. There needs to be a clear purpose for engagement, with clear methodology and key issues drawn out from the feedback. This will enable informed board discussions, decision making and actions.
Given the unique interests and priorities of different stakeholders, a tailored approach to engagement is required for each stakeholder group. This involves avoiding vague descriptions of engagement, such as “feedback channels”, and identifying the most effective method of engagement for each stakeholder group. The FRC also deems it good practice to explain why the company has chosen its engagement mechanism, as well as how it will monitor this to ensure it is effective.
As we have seen in trends elsewhere in the annual report, transparency and authenticity are increasingly important to audiences. Rather than only disclosing the positive achievements and feedback from the year, it is important to detail the issues that were raised during the engagement to ensure that they are addressed by the board and incorporated into the company’s strategy moving forward.
In line with the trend encouraging interconnectivity between sections of the report, clear linkages should be presented between stakeholder engagement and the company’s strategy, purpose, culture and values. This holistic approach demonstrates that stakeholder engagement goes beyond a checklist exercise and is considered within wider business operations and values. This alignment can be introduced at the start of the report in a strategic roadmap visualising the connectivity of these key elements of the company.
The alignment of stakeholder engagement to culture is especially significant as a company’s culture is a crucial element of employee engagement. By monitoring and managing a positive workplace environment, employees are able to communicate their needs and foster better relations with their employers which, in turn, enables an open dialogue and encourages participation in engagement activities.
More than the board
The FRC also reported that engagement should go beyond board level by also detailing how committee chairs should engage with stakeholders on matters related to their areas of responsibility, with an emphasis on the outcome of this engagement.
Lastly, the focus of the spread should be the outcomes of the engagement. This includes detailing the key findings of the engagement, as well as the actions taken by the board as a direct result of stakeholder feedback. Case studies of decisions made by the board can be used to support the outcome of engagement by demonstrating how stakeholder interests influenced decision making and that the board has acted on any issues raised.
As with all things reporting, developments and changes will continue into 2023. We are excited to provide guidance on how companies can communicate the customisation of engagement strategies and provide more emphasis on the outcomes of engagement.
If you need support getting your corporate communications right, get in touch at email@example.com.