Director Development Centre

Principal: Richard Winfield

Manage relations with stakeholders*

In a previous article we considered the increasing need to take account of the interests of stakeholders.

In many cases this requires a relationship, and relationships require communication.

The first stage is to establish processes to ensure that the organisation and the board are able to monitor relations with shareholders and other interested parties.

The second is to ensure that communications with shareholders and other interested parties are effective.

Companies should have some form of formal or informal market and competitive intelligence system by which they collect, collate and interpet information. Directors should ensure that this includes information about their key stakeholders.

The purpose of collecting information about stakeholders is to improve decision-making and to evaluate problems and opportunities to allow early action. It should also be capable of evaluating the cost and benefit of managing or mismanaging such relations.

Since stakeholders are mainly closely involved with the organisation some information can be collected through good personal relations, though it is also desirable to obtain information from independent third parties, including by monitoring the media.

As with all information collection, the board needs to monitor both its effectiveness and its cost-effectiveness.

Communication from the organisation to shareholders and stakehloders can be more formal, with particular emphasis on the content of the annual report and statements to the press and stock market. In some cases this needs to be carefully managed to ensure that some shareholders are not given privileged information; directors should make sure they are familiar with Stock Exchange rules on such matters.

It is in the interest of an organisation to maintain a pro-active and positive public relations strategy. In addition to the specific needs of shareholders and stakeholders, it should promote its vision, mission, values and policies, together with good (and bad) news about new investments, best practice, significant orders, corporate social responsibility, etc.

The chairman and chief executive will play a significant role here, but it is a responsibility of all directors to act as ambassadors for their organisation.

• Shareholders will mainly want to know if the company is making a profit in order to be confident that they can get returns on their investment.
• Customers will wish to know when what they want is available, what the price will be, whether the quality of the good or service meets their expectations and what they can do if it does not.
• Suppliers will wish to know when their supplies are required and where, and in what format, they should be delivered. They may also want to know that their contracts are being honoured and that they will be paid on time.
• Employees will want information on things like what they must do and how they are performing; any changes and how they may be implemented; human resource issues such as contracts, health and safety, grievance and discipline; meetings and actions from these meetings.
• The local community may also wish to know how they will be affected by actions that the organisation and its managers may take.

Although much of this information relates to organisation and management matters and the detail is of no direct interest to the board, the board should ensure that communications, and thus relations with stakeholders, are adequate.

Corporate governance

Does the board monitor relations with shareholders and other interested parties and ensure that communications are effective?

• Relations are reliable, efficient and ethical?
• Relations are relevant for decision-making?
• Communications are relevant, consistent, accurate and cost-effective?
• Communications are likely to meet legitimate expectations in terms of their quantity, quality and timing?
• Communications are unbiased with regard to particular parties and in accordance with the the needs of commercial security and Stock Exchange compliance requirements, where appropriate?

* Inspired by the Institute of Directors Standards for the Board