To govern effectively, boards must be aware of stakeholder needs and interests in the environment in which they operate. In certain circumstances, boards may also have obligations under the law about how they work with stakeholders.

At the heart of stakeholder engagement is the acknowledgement that organisations are impacted by, and have an impact on those with whom they interact.

An effective stakeholder engagement strategy involves building relationships based on mutual trust, respect and understanding. Engagement is not an end in itself, but a means by which to build and develop relationships which help organisations to pursue their purpose.

Stakeholder engagement skills are beneficial both to organisations and to stakeholders. They provide valuable information to the organisation (such as about how it is perceived, stakeholder needs and its broader operational environment), builds goodwill and helps to identify potential issues for resolution.

Through stakeholder relationships management, stakeholders benefit from these relationships too, through helping organisations to better understand their needs and expectations. This engagement also helps stakeholders to develop a more informed understanding of the organisation and how to work with it, and to manage their expectations accordingly.

Identifying stakeholders

All organisations have stakeholders, though who these are will vary based on factors such as the activities an organisation undertakes and its relationships. Boards should develop an understanding of who their stakeholders are, what their relationship to the organisation is, and what responsibilities the organisation has to them, if any. Often, the most important stakeholders for an organisation will be the people that the organisation exists to benefit (its beneficiaries).

Example of stakeholders include:

  • Members

  • Suppliers

  • Clients and their families

  • Volunteers

  • Donors

  • Funders

  • Neighbours

  • Staff

  • Government

  • General public

  • Media

  • Carers

In certain circumstances, directors may have legal obligations to their stakeholders either directly or through the organisation. For example, an organisation has a legal duty to take reasonable care to avoid exposing its workers, including any volunteers, to reasonably foreseeable risks of injury. There needs to be meaningful engagement of stakeholders and their interests must be understood and considered by the board.

In a survey of directors by the AICD and KPMG published in 2019, Creating Value and Balancing Stakeholder Needs: The board’s role, results showed directors now rate customers and clients as the “most significant” stakeholders, then employees next. They put these three stakeholders ahead of even shareholders, who are the traditional big-ticket stakeholders and the people directors represent on the board. Next in the survey rankings were institutional investors, government and regulators, and the local community.

Four steps to stakeholder engagement

  • The board understands who the organisation’s stakeholders are, their needs and their expectations

  • The board oversees a framework for the meaningful engagement of stakeholders

  • Stakeholders are considered in relevant board decision-making

  • There is a process for gathering and responding to complaints and feedback from stakeholders

  • The board oversees a framework for how the organisation works with and protects vulnerable people

Directors' duties to stakeholders

Directors’ duties are generally owed to the organisation as a whole. That is, directors must act honestly, in good faith and to the best of their ability in the interests of the organisation. In practice, this means that a director owes their duties to the members of the organisation, and not to its other stakeholders.

However, an organisation may be subject to other statutory requirements (such as work health and safety legislation) that give rise to duties that directors owe to other stakeholders.

However, directors should consider the views and interests of stakeholders because they can lead to better and more balanced decisions in pursuing the organisation’s purpose.

The board’s roles in stakeholder engagement

An organisation’s relationships with its stakeholders can have a significant impact on its ability to achieve its goals. As such, boards should oversee the process of stakeholder engagement and be satisfied that its stakeholders are identified and understood. Stakeholder engagement is a critical component of good governance.

Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society. - Sir Adrian Cadbury

There are a several practical ways boards can do this. Boards should consider how stakeholders are impacted by relevant decisions, having regard to their needs and expectations, to maximise chances that their decisions will lead to the desired outcome. Seen in this way, considering the influence of stakeholders is part of risk management.

Some boards may authorise a stakeholder management framework which helps to guide an organisation’s work through identifying relevant stakeholders and setting parameters for how to engage with them.

In some circumstances, directors themselves may become actively involved in managing relationships under a stakeholder engagement strategy. For example, it is sometimes helpful for the chair or other directors to attend meetings with politicians in advocacy settings, or to meet with significant donors on behalf of the organisation. This can help to build personal relationships and to reflect the board’s commitment to engaging with important stakeholders.

Responding to feedback

It is important that organisations have a safe and effective method for gathering feedback from stakeholders. This information can be used to inform the delivery of services, to develop an understanding of how the organisation is perceived and to identify and respond to potential concerns. Feedback should be viewed as a positive interaction between organisations and their stakeholders which provide an opportunity to learn and improve.

Feedback can be received in many ways; an individual might make a formal complaint about an organisation using an established complaint handling system or a comment may be made through an informal channel such as social media.

How an organisation gathers and responds to this feedback can have a significant impact on its performance, reputation and culture. For example, if an organisation does not act on feedback or is dismissive of people who raise concerns, this may impact how it is perceived by stakeholders and create a culture in which stakeholders are not valued.

In some circumstances, complaints (especially those which are repeated or serious) may be an indicator of poor performance, misconduct or may in some instances be a breach of the law.

It is a good idea to set out a policy for how the organisation will respond to complaints and other feedback. This policy should apply to all paid and volunteer staff and should include to whom a complaint can be made, how it will be handled, expected timeframes and a process for communicating any resolutions.

Boards should aim to develop a culture of open disclosure which recognises that feedback from stakeholders, even complaints or allegations of wrongdoing, is an important source of insight that can help an organisation achieve its mission and avoid misconduct.

How do you form a stakeholder engagement strategy?

  1. If you want the stakeholder engagement piece to be lasting, it needs to be a core part of your business process.
  2. Stakeholders need to contribute to something greater than themselves.
  3. Make the engagement a key part of the project.
  4. The leadership needs to drive stakeholder engagement.
  5. Take a longer-term view.

How do you incorporate stakeholder engagement into a strategic planning process?

1) Identify diverse stakeholder groups before you begin the strategic planning process.

  • Who will be impacted by the project?

  • What are their interests in the project?

  • Are they direct and indirect stakeholders?

  • Who are the most important stakeholders?

2) Identify who the stakeholder representatives are.

  • Who are the people you need to talk to as part of each stakeholder group?

3) Create a system to solicit their feedback.

  • Lay out a calendar of steps and outreach as part of an action plan.

  • Seek multiple levels of communication from the organization. (Staff, board, etc) 

4) Incorporate their feedback into the strategic planning process

  •  Use their feedback and concerns to create your strategic priorities.

5) Report back

As part of your implementation and communication plan and go back to your stakeholders and show them what you came up with. Look at them as strategic partners to help you achieve your goals. Be transparent with your information.

What are the risks of not engaging each stakeholder?

The risks of overlooking stakeholder engagement include: Missing information, or overlooking stakeholder concerns or misunderstanding, which could develop into a large project risk. Or a failure to recognise complex stakeholder issues and give sufficient time and resource to stakeholder engagement.

Director Tools regarding stakeholders

These Director Tools examine the approach taken by the board concerning accountability to, and communication and engagement with, key stakeholders.

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