New Guidance on the Stakeholder Voice in Board Decision Making

ICSA: The Governance Institute and Investment Association have published new guidance which aims to help company boards ensure that they understand and weigh up the interests of their key stakeholders when taking decisions.

2 October 2017

ICSA: The Governance Institute and Investment Association have published guidance on "The Stakeholder Voice in Board Decision Making", which aims to help company boards ensure that they understand and weigh up the interests of their key stakeholders when taking decisions. The guidance lists 10 core principles that boards should follow, as set out below, and gives practical advice as to implementation of the principles. Useful case studies from leading listed companies on how some of these issues have been addressed have also been given. 

This is a welcome addition to the debate which is currently being had in companies seeking to meet the changing landscape for stakeholder engagement. The guidance seeks to have at its core the strengthening of the company and promoting its long term success, rather than being seen to be a "tick box" exercise on corporate governance compliance. 

While much of the guidance encapsulates practices that the best companies will already be adopting, it gives a useful overview of the key issues, considerations and practical approaches in this area. It will be interesting over the next two years to review the content of listed company accounts and see how practice evolves.

Core principles

  1. Boards should identify, and keep under regular review, who they consider their key stakeholders to be and why.
  2. Boards should determine which stakeholders they need to engage with directly, as opposed to relying solely on information from management.
  3. When evaluating their composition and effectiveness, boards should identify what stakeholder expertise is needed in the boardroom and decide whether they have, or would benefit from, directors with directly relevant experience or understanding.
  4. When recruiting any director, the nomination committee should take the stakeholder perspective into account when deciding on the recruitment process and the selection criteria.
  5. The chairman – supported by the company secretary – should keep under review the adequacy of the training received by all directors on stakeholder-related matters, and the induction received by new directors, particularly those without previous board experience.
  6. The chairman – supported by the board, management and the company secretary – should determine how best to ensure that the board’s decision-making processes give sufficient consideration to key stakeholders.
  7. Boards should ensure that appropriate engagement with key stakeholders is taking place and that this is kept under regular review.
  8. In designing engagement mechanisms, companies should consider what would be most effective and convenient for the stakeholders, not just the company.
  9. The board should report to its shareholders on how it has taken the impact on key stakeholders into account when making decisions.
  10. The board should provide feedback to those stakeholders with whom it has engaged, which should be tailored to the different stakeholder groups.

Read the full publication here.