5.6.2 Stakeholder relationship governance

Stakeholders are individuals, groups or organisations that have a stake in the company, through interest, influence or both, each with their own needs and expectations. They range from shareholders, employees and Board members to lenders, customers, suppliers, government and local communities.

According to the G20/OECD Principles of Corporate Governance, “The corporate governance framework should consider the rights, roles and interests of stakeholders and encourage active co-operation between companies, shareholders and stakeholders in creating value, quality jobs, and sustainable and resilient companies.”¹

There are many benefits to building and maintaining positive stakeholder relationships, including:

• lower operational and project risk;
• a stronger reputation;
• buy-in for the company’s plans;
• compliance with regulatory requirements;
• competitive advantage.

Identification of stakeholders

The first step is to identify the key stakeholders: to determine the stakeholder groups and understand their needs and the roles they play. Some simply need to be kept informed, while others directly influence the company’s operations or the outcome of particular projects.

Mapping the stakeholders

By mapping its stakeholder groups, the company can develop a plan to engage with each group in the way that works best for it. This makes the best use of resources: groups that need less attention are not over-communicated with, while the groups with high interest and high influence are engaged in greater depth.

When mapping stakeholders, place them in one of the four categories shown in the figure below.

Stakeholder mapping places each stakeholder group according to its interest in the company and its influence over it, so that the company can engage with each group in the way that suits it and make the best use of its resources. The key stakeholders, with high interest and high influence, are engaged closely and may be involved in decisions; highly interested groups with less influence are kept fully informed and consulted; influential groups with little day-to-day interest are monitored and their needs anticipated; and groups with low interest and low influence receive essential information only. The map should be reviewed regularly, since interest and influence change with circumstances.

It is very important to share information with stakeholders clearly and in good time, using the channels each stakeholder group prefers. Trust is established and maintained by being transparent about the status and plans of the company’s activities and projects. Good communication is essential to share the company’s vision with its stakeholder groups: provide the big picture, with timelines and key milestones where needed.

Another part of communication with stakeholders is active listening, one of the most important stakeholder communication skills. Listen to their feedback and make sure that their perspectives, suggestions and concerns are understood. It is good practice to convene stakeholder forums and invite key stakeholder representatives. Stakeholders who feel heard are far more likely to trust the company.

To embed stakeholder engagement in the company’s operations, the Board should:

1. define stakeholder engagement as a core value;
2. identify, discuss and prioritise the key risks associated with changing societal expectations;
3. determine the Board’s financial and non-financial information needs for decision-making, management oversight and the monitoring of key stakeholder relationships;
4. discuss and approve key performance indicators for social, environmental and financial performance;
5. approve a policy for external reporting;
6. integrate stakeholder issues into the annual general meeting of shareholders;
7. discuss the risks and impacts of projects and operations and provide transparent disclosure to shareholders and other key stakeholder groups;
8. convene stakeholder forums and invite key stakeholder representatives to address Board meetings;
9. consider establishing a stakeholder relations committee.

Balancing the interests of the stakeholder groups

Different stakeholder groups may have different and sometimes opposing interests. For instance, employees want higher pay while customers want lower prices, and one part of a community wants well-paid jobs while another does not want a factory built nearby.

The Board should consider the interests of the relevant stakeholder groups and find the most suitable way to balance them, taking into account the interests and long-term goals of the company.

Addressing conflicting interests requires careful consideration, compromise and effective communication by the Board, to find solutions that balance the needs of stakeholders while maintaining the sustainable development of the company and observing ethical standards. The key activities and considerations are:

1. Stakeholder identification. The Board should ensure that the company identifies its stakeholder groups and their interests (see stakeholder mapping above).
2. Stakeholder communication. The Board should ensure that the company establishes clear and consistent communication channels and delivers relevant and timely information about its activities and plans and their impact. The company should also actively seek stakeholders’ feedback: communication should flow in both directions.
3. Balancing interests. Not all stakeholder groups have the same interests, so compromises are needed. The company should balance the different interests and seek solutions that benefit all sides, cooperating with key stakeholders and involving them in decision-making where appropriate. Engaging them builds a sense of mutual benefit and loyalty. The costs, benefits and risks of each alternative should be considered, together with the short- and long-term implications for the company and its stakeholders. Such an approach benefits the company’s competitiveness and image.
4. Monitoring and assessment. It is important to monitor and regularly assess the results of business decisions against the interests and opinions of the stakeholder groups, for example by evaluating stakeholders’ reactions and satisfaction. In this way the Board and the company understand the real consequences of their decisions and can make the necessary adjustments and improve their decision-making.