The stakeholder imperative: an urgent priority for boards
14 May 2020: how have boards responded to the ongoing coronavirus crisis in light of the wide range of stakeholders they have to consider, and what should they be doing to plan for the future?
The many challenges faced by boards and leadership teams during the pandemic have been a true test of their mettle. It has been fascinating to see how – or, indeed, whether - boards and their chief executives have stepped up, writes Hanif Barma, Founding Partner at Board Alchemy.
The challenges for boards are varied. In some cases, cessation of business activity during lockdown has severed a company’s links with its customers, resulted in staff being furloughed or laid off and had a major knock-on effect on suppliers. In other cases, where boards have attempted to keep the business going, remote working and challenges in their supply chains have had a major impact. And, in a few cases, business is booming (think Zoom) which brings with it quite different challenges relating to scaling up that also need to be addressed.
In the year or two leading up to the pandemic, boards will have had frequent conversations with their auditors and advisors about s172 of the Companies Act. We’ll all now be very familiar with the Act’s requirement for directors to ‘promote the success of the company’ for the benefit of shareholders – whilst having regard to (i) the interests of the company’s employees, (ii) the need to foster the company’s business relationships with suppliers, customers and others and (iii) the impact of the company’s operations on the community and the environment.
Until coronavirus struck, how seriously boards have viewed this wide range of stakeholders has varied. But in light of the pandemic there can be little doubt that boards need to place stakeholders centre-stage in their decision making.
I recently interviewed some of my clients to find out how their boards have responded to the crisis. These discussions have thrown up interesting examples that show why the impact of – and on – stakeholders need should be integral to their boards’ strategic thinking.
One board, having set up employee voice forums last year, had a ready-made channel to get views from staff and listen to their concerns about the unfolding pandemic. Another, with culture at the heart of its strategy, had to devise new ways to ensure the psychologically safe environment they had worked hard to build could continue when all staff were working remotely.
More active engagement with finance providers has become commonplace, and those companies that have invested in building relationships with their bankers and loan providers have found this to be invaluable in recent weeks. Those with constructive and open relationships with their supply chain have been better able to manage and mitigate the impact of disruption. Others have enhanced (or severely dented) their reputations through the way they have interacted with local communities.
Planning for the future
There will be more complex challenges for boards to come as the lockdown eases. As they think about recovery, they will need to plan for different scenarios whilst substantial uncertainty remains. How fast or slow will this be? And how will this affect different sectors, different parts of the UK (if the four nations take different approaches) and, for international companies, how do boards manage when each country they operate in has a different set of rules?
So, when it comes to stakeholders and their impact on the business, what should boards be doing?
There are a number of key steps:
- Spend time working out who your key stakeholders are – and, within each stakeholder group, understand whether subsets have different perspectives, needs, expectations and levels of influence
- Work out how to communicate with each stakeholder group – is active dialogue and engagement needed and do relationships need to be built?
- Determine the respective responsibilities of the executive team and the board, both collectively and individually
- Consider the board’s need for assurance over stakeholder views – does the board really know what its stakeholders think, or does it just think it knows?
- Factor the impact of (and on) key stakeholders into board-level decision making.
Boards should now realise that all stakeholders – not just investors – can have a major impact on their business. They choose to ignore this fact at their peril.
About the author: Hanif Barma, founder of Board Alchemy, is a board governance specialist and works with boards to better understand the stakeholder perspective. He is also a co-founder of the Risk Coalition.