Other notes on stakeholder engagement

Question 1

What does the UKCGC say re stakeholder engagement?

Answer 1

Provision 5 states that:

‘The Board should understand the views of the company’s other key stakeholders and describe in the annual report how the interests and the matters set out in section 172 CA 2006 have been considered in board discussions and decision-making. The board should keep engagement mechanisms under review so that they remain effective’.
CA 2006 limits the stakeholder group to employees, suppliers, customers and others determined by the company. Companies will be required to report in their annual reports how the interests of stakeholders have been considered in board discussions and decision-making.

Larry Fink, CEO of BlackRock in his 2019 Letter to CEO states ‘Companies that fulfil their purpose and responsibilities to stakeholders reap rewards over the long-term. Companies that ignore stumble and fall’.

The failure of governments to provide lasting solutions to pressing social and economic issues, among them, stagnant wages, the effect of technology on jobs etc. has led society to look to companies to provide solutions to these issues

Question 2

What does the code say regarding engagement with the workforce? &&&&

Answer 2

Principle E states that: ‘The board should ensure that workforce policies and practices are consistent with the company’s values and support its long-term sustainable success. The workforce should be able to raise any matters of concern’.

Have way of raising concerns, anonymously if they want to.

Provision 5 of the 2018 Code provides that for engagement with the workforce, one or a combination of the following methods should be used:

• A director appointed from the workforce;
• A formal workforce advisory panel; and
• a designated NED.

If the board has not chosen one or more of these methods, it should explain what alternative arrangements are in place and why it considers that they have been effective.

Question 3

What does Wates say regarding stakeholder engagement?

Answer 3

Principle 6 of the Wates Principles states that ‘directors should foster effective stakeholder relationships aligned to the company’s purpose. The board is responsible for overseeing meaningful engagement with stakeholders, including the workforce, and having regard to their views when taking decisions’.

Boards of large private companies should consider how their company’s activities may impact both current and future stakeholders, which, for example could include impacts on the environment.

Dialogue with stakeholders will help boards of large private companies understand the effects of company policies and practices, predict future developments and trend and re-align strategy.

Boards should identify and prioritise stakeholder relationships for those affected by company operations and integral to its ability to generate and preserve value.

Question 4

What has been the impact of s.172 on stakeholder engagement?

Answer 4

Directors have a duty to act in a way that promotes the success of the company and under the Companies (Misc Reporting) Regs 2018, to report on their adoption of s.172 requirements as part of annual reporting.

Boards are coming to terms in relation to how they conduct their decision making as they may have to report in their s.172 statements how regard was had to the matters set out in s.172 including:

• The likely consequences of any decision in the long term;
• The interests of the company’s employees;
• The need to foster business relationships with suppliers, customers and others;
• The impact of the company’s operations on the community and the environment.

CoSec should review the governance framework of the organisation – structures, policies and procedures – to see if any changes are required to meet the reporting requirements for s.172. CS should ensure the boards understand that stakeholder engagement is wider than CSR. Compliance with s.172 may also require changes to the organisation’s strategy, targets and risk management processes.

Question 5

What can the CoSec explain as the business case for stakeholder engagement?

Answer 5

• Markets perceive them as less hostile to local values and ways of operating;
• Create value and wealth;
• Gain and retain loyal customers avoiding boycotts or undesirable customer actions;
• Create perception the company is a good place to work and increase ability to recruit and retain talent;
• Identify a way to increase efficiency and reduce costs in operations.