Why stakeholder engagement is key to business recovery

Businesses that manage to strengthen their relationships with stakeholders during the crisis are poised for stronger recovery

As businesses continue to navigate one of the largest and most severe economic shocks on record, the true value of engaging with stakeholders during the crisis will become apparent over the coming months.

Whether you need to engage with government to ensure financial support, encourage customers to stay loyal during business disruption or motivate employees to remain productive throughout restructuring, there are clear benefits to be gained by not just communicating with stakeholders but keeping them engaged.

But with so many different stakeholders critical to the success of most organisations, how can you go about identifying which stakeholder groups or individuals are most important, and ensuring someone on the board takes responsibility for sustaining good relationships with them?

Prioritising stakeholders

Changes to Section 1.7.2 of the Companies Act, now coming fully into effect, have put new emphasis on how company directors think about the long-term implications of decisions made on employees, investors and other stakeholders, including the community and environment.

Also, as the pandemic has already illustrated, how well a company treats and is regarded by stakeholders, such as employees, suppliers, customers and society, impacts not only on its reputation but ability to thrive. This puts the onus on boards to think more strategically about who their stakeholders are and how best to engage with them.

When it comes to deciding which stakeholder groups to prioritise, the most important and vocal stakeholders right now might not be the most important in future, so it’s important to consider all the groups, organisations and individuals impacted by the activity of the business.

Think about what you can expect from meaningful stakeholder engagement in terms of what the stakeholder wants and needs and what the business wants and needs, so these two factors can be aligned.

Communication versus engagement

While many boards say that the pandemic has strengthened the relationship between the executive and non-executive directors, have relationships between stakeholders become stronger or weaker and what is the financial cost or value of that?

Stakeholder management during a crisis tends to be highly reactive and focused on mitigating risks and preventing hostilities. While stakeholder management during more normal times is about more proactive communication. However, it’s stakeholder engagement, the creation of two-way dialogue designed to optimise the relationship that can yield the greatest results, making stakeholders more loyal, communicative, flexible and willing to forgive any mistakes.

Critical to really engaging with stakeholders is making someone accountable for each stakeholder group, typically a non-executive director, so they can consider what decisions being made mean from the perspective of that stakeholder and keep an eye on data relating to that stakeholder.

In the event that a stakeholder, such as the workforce, is particularly important, the board might also like to consider having direct representatives sit on the board, in much the same way that FTSE 250 outsourcing giant Capita has appointed two employees as non-executive directors, in keeping with its focus on ‘representing the employee’s perspective at board level.’

Social contracts

As Indra Nooyi, former Chair and CEO of PepsiCo, observed when transforming the business to not only deliver for customers but also protect the environment and invest in employees, “Business does not operate in a vacuum – it operates under a licence from society.” 

This is something shareholders and the regulator are increasingly keen to see, which is essentially about creating ‘social contracts’ – an implicit agreement between the business and each of its stakeholders that it will protect and enhance the society in which we live.

With all the current emphasis on ‘building back better’, the recovery and redesign phase into which the pandemic has now driven most businesses, provides the ideal opportunity to rethink stakeholder engagement, the needs of various stakeholders and how the business can better meet these, in a way that also supports its own recovery.

On a practical level, this requires the director leading ownership of this stakeholder group, cascading responsibility for ensuring two-way conversation down through the organisation and receiving feedback right back up to board level. The director should demonstrate how decisions have been made in a way that takes account of this stakeholder’s interests, to not only boost engagement but also increase transparency around decision-making to make the board and its role more visible and valued as well.

Bvalco now includes an objective stakeholder engagement assessment in our annual reviews, or can offer this as a stand-alone board service. To set up a free consultation to discuss your needs, please email [email protected]

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