Any governance professional worth their salt is well aware of the multiple accountabilities and demands directors face, and is adept at helping the board prioritize, manage and meet expectations as appropriate. In so doing, corporate secretaries and other governance professionals tend to turn to best practices to support their boards’ successes.
When it comes to governance best practices, the principles are consistent regardless of the organization in which you hone your expertise. This is the case whether you work with a small or medium-size private company, a not-for-profit (NFP), a public institution or a major corporation. Among these principles is the need to pay attention to stakeholders’ expectations and interests.
This reflects one more responsibility held by leaders – directors and management – who must do more than meet compliance requirements and deliver on goals associated with strategic plans. Those atop the org chart also need to be effective in meeting stakeholders’ needs. In identifying stakeholder groups, shareholders may be top of mind for many. There are, however, additional internal and external stakeholder groups, some of which may vary from one organization to another.
Healthcare sector boards, for example, count patients among their stakeholder groups. Education sector boards will consider students chief among their stakeholders. As educational institutions now encounter not only helicopter parents (protective parents who hover nearby, paying close attention to a child’s experiences) but also snow plow parents (those who force obstacles, actual or perceived, out of their children’s path to success) on a routine basis, many leaders in education also count students’ parents among their stakeholders. Your own organization’s list of stakeholders will include employees, of course. It may also include clients, governments, regulators, environmental and other interest-focused groups, and the public at large.
The Changes In Stakeholder Interests
A great deal has been said and written in recent years about stakeholder activism. It has been evidenced during shareholder meetings and proxy votes, as well as at board meetings and on social media. While “shareholder primacy,” a term that arose during the 1970s, has been dominant in subsequent decades, 2019 saw the US’s Business Roundtable espouse a different approach. The Business Roundtable’s August 2019 Statement on the Purpose of a Corporation, signed by 181 influential CEOs, generated significant buzz this past summer.
The single-page statement articulated a series of commitments, including one that might reasonably have been anticipated: “Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.”
However, the statement also extended a precedent-setting commitment to stakeholders. The CEOs affirmed that, “While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.” The underscoring of “all” is courtesy of the US Business Roundtable, and not this writer. The 2019 statement concluded, “Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
Are Stakeholder Interests Being Met?
It’s worth considering, then, whether stakeholder interests are being met. The Diligent Institute, a think tank that provides publicly available research on global board governance, decided to assess just that. This summer, the Diligent Institute partnered with Stanford University’s Rock Center for Corporate Governance for a global survey of almost 200 directors of public and private corporations. The intent of the survey was to gain a better understanding of how companies balance stakeholder and shareholder needs.
The research found that, contrary to popular perception, companies do not place shareholders’ needs significantly above those of their employees or society at large. The report, released on November 12, 2019, also concluded that corporate directors are not as shareholder centric as is commonly believed.
The variation between broadly held assumptions and efforts and experiences as reported by the surveyed directors may come down to communications. While boards increasingly strive for transparency, perhaps it’s time for some boards to also task the companies they lead to better communicate the significance directors attach to stakeholder interests.
Consider your boardroom debates as you read the research results, and the deliberations and nature of the questions posed as your directors assess the merits of a given proposal. With exceptions, it’s likely that both the statistics and the narrative will resonate.
Diligent Institute and the Rock Center for Corporate Governance found that 89% of corporate directors believe it’s important or very important for their businesses to consider the interests of employees, the general public, local communities and other non-shareholder stakeholders while pursuing their business objectives.
Directors are expected to focus not only on short-term results, but also on the long-term management of the organizations they lead. In the survey, directors were asked how important stakeholder interests are relative to shareholder interests in the long-term management of their respective companies.
A substantial majority of directors, 77%, do not consider shareholder interests to be significantly more important than stakeholder interests. One director reflected, “Our job as a board is to listen to the forces that are out there, but we have to stay true to the mission and vision of the company, the values of the company, and the strategy. If you keep your eye on those elements, then you can more mindfully balance the input from stakeholders.”
Let’s break down that aforementioned 77%. Thirty-six percent of directors attach equal significance to shareholder and stakeholder interests. Almost a third of the surveyed directors consider shareholder interests to be only slightly more important than stakeholder interests. It’s noteworthy that 4% of the surveyed directors believe stakeholder interests to be more important than those associated with shareholders, and that another 6% of directors consider stakeholder interests to be significantly more important than those associated with shareholders. The remainder, 23% of directors, believe that shareholders’ interests are significantly more important than those of stakeholders.
How Can Directors Can Better Meet Stakeholder Interests
Directors are not a naïve bunch; they acknowledge the existence of tensions between shareholder and stakeholder interests. As one director commented on the constant juggling of shareholder and stakeholder interests, “Sometimes [their interests are] competing, sometimes [they are] complementary.” “I want to hear what [stakeholder] concerns are.” It’s likely this acknowledgement of and attention to different parties’ interests that led most directors to conclude that their respective companies are successful in balancing such tensions.
A directorship is a significant commitment, one that people of integrity do not assume lightly. Perhaps, like some governance professionals reading this, corporate directors believe they do not receive the recognition their efforts merit. Only a small majority of directors believe that their largest institutional shareholders (57%) and their most important stakeholders (56%) understand the job their companies do to meet their respective interests. An even lower percentage, 18% of the surveyed directors, think that the media understands what their respective companies do in order to meet stakeholder needs.
Those who are involved in governance may be unsurprised to read of directors’ affirmations that stakeholder interests are vitally important, or that 92% of those surveyed are satisfied with the job their companies do to meet stakeholders’ interests. Perhaps it’s time for organizations to attach more significance to communicating the attention paid to stakeholders’ interests, while managing expectations. As one director involved in the study commented, “I want to hear with equal weight, but I may not act with equal weight. Our job is to decide, take input from all kinds of sources, and make sense of it.”