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Stakeholders are more vocal and influential than ever. Directors who rely on outdated assumptions risk turning engagement gaps into governance failures.
Trust is fragile, expectations are rising and stakeholders are increasingly willing to speak up. Experts say boards that fail to actively test their assumptions risk being caught off guard.
Stakeholder engagement may be led by management, but boards carry the oversight risk.
Stakeholders are more vocal than ever, raising the stakes for boards that rely on outdated assumptions. While management leads engagement, directors carry the oversight risk and experts warn that failing to test stakeholder views can leave boards exposed to strategic blind spots.
One of the biggest risks in the boardroom today isn’t financial reporting or compliance, it’s assuming the organisation understands its stakeholders.
“Stakeholder communications break down when we rely on assumptions,” says governance adviser Zora Artis GAICD, CEO of Artis Advisory.
“Transparency expectations are so much higher, trust in institutions so much lower,” she says. And trust is a strategic asset.
“Boards today genuinely value stakeholder perspectives. But if directors assume that because they’ve engaged historically they already understand them, that’s a mistake.”
Stakeholders themselves are changing. Communities, employees and investors are increasingly willing to challenge organisations publicly – and more confident in doing so.
“Stakeholders are becoming savvier,” says governance and engagement specialist Sonia Cahill GAICD. “They expect organisations to follow through and live up to their values, not just meet the minimum obligation.”
In such an environment, stakeholder blind spots can quickly turn into reputational crises, regulatory pressure and financial consequences.
Three common blind spots boards overlook
One common mistake is treating stakeholder engagement as a communications exercise rather than a governance issue.
“Stakeholder engagement often sits within the communications function,” says Artis. “But it really belongs in the board’s risk and oversight lens.”
When engagement becomes primarily about messaging, organisations risk focusing on what they want to say rather than what stakeholders are trying to tell them.
An experienced NFP director, Cahill says boards sometimes delay engaging because they feel they need all the answers first. That’s not the point. “Meaningful consultation means asking questions and listening,” she says.
“There’s no such thing as stakeholder management — you can’t manage your stakeholders, but you can have a relationship with them.”
Another blind spot is outdated stakeholder mapping. Expectations, influence and risk profiles can shift quickly.
“It’s not a set-and-forget exercise,” says director Dr Katrena Stephenson FAICD, President of the AICD Tasmanian Division Council and an experienced non-executive director. “Just because you mapped stakeholders two years ago doesn’t mean the risks or expectations are the same.”
Community expectations, in particular, have expanded as access to information grows and stakeholders become more confident about speaking up.
“People who might not have previously seen themselves as stakeholders now expect to be considered,” says Stephenson.
Boards also take a risk when they rely heavily on filtered information instead of taking or creating opportunities to listen to stakeholders.
“If you’re relying on what’s coming through in the board pack, you’re on the back foot,” says Artis.
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When assumptions become a crisis
Misjudging stakeholder expectations can quickly become a strategic risk.
The destruction of the Juukan Gorge caves by Rio Tinto in 2020 remains a stark example of the gap that can exist between regulatory approval and stakeholder expectations.
“Just because you can do something legally, doesn’t mean stakeholders will accept it,” says Cahill.
When that gap emerges, consequences can ripple out.
“If stakeholder concerns aren’t recognised early, you can see reputational damage, regulatory issues and even strategy failure,” says Artis. “Trust can be lost very quickly and it’s very hard to rebuild.”
In the government sector, even relatively contained decisions can spiral if stakeholder impacts aren’t fully considered. Stephenson points to an enterprise bargaining deal pitched as an innovative workplace reform – Launceston City Council proposed moving staff to a four-day week without reducing pay. Employees were preparing to vote.
“Then the Chamber of Commerce and Industry caught wind of it,” recalls Stephenson.
The backlash was severe. Business groups warned the council’s deal with the union could set expectations across the broader economy. Other councils feared pressure to follow. Ratepayers worried their services would suffer.
Management may have been working within budget and risk parameters, says Stephenson, but it doesn’t appear they considered broader stakeholder impacts.
The issue spilled into the media and local politics, and the council – effectively the board – ditched the deal.
“It’s a fascinating case study in stakeholder engagement not done well,” she says. “You can get a bit of tunnel vision.”
Gregory Robinson, managing partner of executive search and board advisory firm Blenheim Partners, says stakeholder failures are increasingly linked to leadership accountability.
“In recent years, we’ve seen CEO tenure affected by stakeholder failures or concerns,” he says, pointing to examples including Star Entertainment Group, Woolworths and WiseTech Global.
“Boards hold CEOs accountable for overall company performance, and that includes both financial and stakeholder outcomes. The two are intertwined.”
The board’s role
While stakeholder engagement is led by management, boards have a critical oversight role.
“Management obviously has a role in stakeholder engagement and feeding insights back to the board,” says Artis. “But you can’t rely purely on that.”
Directors need to ensure the organisation has processes to identify priority stakeholders and monitor shifts in sentiment.
That starts with asking better questions.
“Boards need to be curious and probing,” says Artis. “What haven’t we heard? What signals might we be missing?”
Directors should also ensure engagement captures a broad range of perspectives, rather than just the most vocal.
“We can often be distracted by the noisy minority,” says Stephenson. “It’s important to satisfy yourself that you’ve heard from a broad range of stakeholders, including the silent majority.”
Robinson says boards that anticipate stakeholder shifts tend to take a more strategic view.
What separates boards that anticipate change from those that react too late is foresight.
Listening beyond the boardroom
Directors can strengthen their understanding of stakeholder sentiment by stepping outside traditional information channels.
“Sometimes, the best insight comes from getting out of the boardroom,” says Cahill. “Visiting sites, speaking informally with people and observing what’s happening on the ground can give you a very different perspective.”
At any event with stakeholders, says Artis, be a careful observer. “It’s not just listening with your ears, it's also observing. Sometimes you can feel it as well.”
These interactions can reveal early warning signals that formal reporting might miss.
Cahill suggests directors stay across current affairs and social sentiment, which can move fast. But ultimately, she adds, effective stakeholder engagement is about more than avoiding risk.
“Stakeholders can be your greatest advocates or your biggest liability, depending on how you treat them.”
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