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Anne Kirkeby

Securing trust of stakeholders is essential for company success

We have identified six principles of trust that individually and collectively contribute to corporate trust. They are linked, interdependent and essentially all rooted in long-term thinking, planning and preparedness. This article relates to the principle of ‘Stakeholder voice’ which contributes to a company having a social licence to operate by securing the trust of key stakeholders which is essential for long-term success.

The following is a chapter from our annual ‘Complete 100’ research titled ‘Less Perfection. More Authenticity’ which analyses the corporate reporting trends of the FTSE 100. Our 13th edition finds more authenticity and credibility in reporting is required to build trust among stakeholders. Request the full report here.

WHY REPORT ON STAKEHOLDERS

Securing the trust of key stakeholders is not just an ethical question but essential for company success. Companies will only succeed in the long term if they have a licence to operate: customers want their products, employees want to work for them, suppliers want them as partners, shareholders want to buy their shares, debt providers want to provide them with funding and communities want their presence.

As many before him, Sir Win Bischoff, Chairman of the FRC, concludes that in the long run, there is no conflict between a model that seeks to maximise value for shareholders and one that creates value for all stakeholders1. Organisations can only create lasting value for investors if they can develop successful and enduring relationships with stakeholders.

The debate around Section 172 of the Companies Act which sets out directors’ duties and requires directors to have regard for stakeholders, the draft Corporate Governance Code’s proposed disclosure around evidencing regard for stakeholders in decision-making and the recently released secondary legislation on reporting on Section 172 has made ‘stakeholders’ one of the biggest reporting themes in the last 18 months.

Looking at how companies reported on stakeholders last year, it is clear that they will need to move beyond discussions on how they engage with stakeholders to how they use this information in strategy setting. Data this year looks somewhat more promising in that regard. Finally, companies will need to find practical solutions for bridging the stakeholder reporting requirements coming out of the Guidance on the Strategic Report and those coming out of the Corporate Governance Code to make them supplement each other, rather than duplicate content. For instance, the strategic report could discuss stakeholder engagement and how this impacts strategy while the governance report focuses on how oversight is provided. In the governance report this would mean setting out the oversight process, information streams to the board on stakeholder expectations, and examples of specific decisions illustrating how stakeholders’ interests were considered.

HOW THE FTSE 100 REPORTED IN 2017

Stakeholder engagement and how this process informs strategy and decision-making is an area companies started slowly reporting on last year. This year, in anticipation of new reporting requirements, reporting has moved up several gears, particularly with regards to the extent of engagements. This suggests that companies previously weren’t discussing all the engagements they had been undertaking, or they have been extremely busy this year.

Almost all companies now provide some level of discussion on engagement with some of their stakeholders. More than half of the companies reviewed set out a detailed discussion on how they engage with their stakeholders (61%, up from 32% last year). Unsurprisingly, employees continue to be the most engaged group. More than half of all companies also clearly identify their key stakeholders, up from 21% last year. This development is key for understanding who companies think their key stakeholders are, allowing the reader an opportunity to assess the risks and opportunities these present.

The discussion around stakeholders also appears to be slightly more strategic this year. More than half of all companies outline expectations for some of their key stakeholders – mostly customers and employees. About a quarter explain expectations for all stakeholder groups. This could suggest that the feedback from engagements is beginning to inform how the company thinks, but may equally just be better disclosure.

42% now reference stakeholder considerations in the market review while, 19% provide some discussion around how stakeholders’ expectations have been taken into consideration in setting strategy – again predominantly around customers. Based on this, companies appear to be beginning to understand and respond to how they impact and are themselves being impacted by stakeholders. In particular, the reference to stakeholder considerations in the market review could suggest that companies may be taking a longer-term perspective when it comes to future impacts.

Finally, the research finds that the tone from the top is also somewhat aligned with the increased focus on stakeholders, with almost half of chief executives or chairmen discussing stakeholders in their leadership statement in the strategic report. Interestingly, only slightly more than a third, so less than in the strategic report, discuss stakeholders in the leadership statement in the governance report. A development which is slightly at odds with both the proposed Code and new Companies Act regulation, which firmly places the ultimate responsibility with the board and will soon require the board to report on how it has discharged this responsibility.

This is a chapter from our annual ‘Complete 100’ research titled ‘Less Perfection. More Authenticity’ which analyses the corporate reporting trends of the FTSE 100. Request the full report here.

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