November 29, 2020

Volume X, Number 334

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The Stakeholder Voice in Board Decision Making

The Institute of Chartered Secretaries and Administrators (ICSA) and the Investment Association (IA) have published guidance entitled “The Stakeholder Voice in Board Decision Making; Strengthening the business, promoting long-term success” (available to ICSA members). This guidance is aimed at the boards of all companies, whether listed or privately owned and regardless of sector or size.

The guidance acknowledges that whilst companies may have certain stakeholders in common (such as employees, customers, suppliers, shareholders and lenders) their stakeholders will vary according to, amongst other things, the size, industry and location of the specific business. For that reason, the guidance does not seek to set out a comprehensive range of approaches but rather concentrates on 10 core principles that should guide boards’ strategic decision making.

The core principles are set out below verbatim:

  • “Boards should identify, and keep under regular review, who they consider their key stakeholders to be and why.

  • Boards should determine which stakeholders they need to engage with directly, as opposed to relying solely on information from management.

  • When evaluating their composition and effectiveness, boards should identify what stakeholder expertise is needed in the boardroom and decide whether they have, or would benefit from, directors with directly relevant experience or understanding.

  • When recruiting any director, the nomination committee should take the stakeholder perspective into account when deciding on the recruitment process and the selection criteria.

  • The chairman – supported by the company secretary – should keep under review the adequacy of the training received by all directors on stakeholder-related matters, and the induction received by new directors, particularly those without previous board experience.

  • The chairman – supported by the board, management and the company secretary – should determine how best to ensure that the board’s decision-making processes give sufficient consideration to key stakeholders.

  • Boards should ensure that appropriate engagement with key stakeholders is taking place and that this is kept under regular review.

  • In designing engagement mechanisms, companies should consider what would be most effective and convenient for the stakeholders, not just the company.

  • The board should report to its shareholders on how it has taken the impact on key stakeholders into account when making decisions.

  • The board should provide feedback to those stakeholders with whom it has engaged, which should be tailored to the different stakeholder groups.”

The Government has recently announced a raft of corporate governance reforms and the Financial Reporting Council will be consulting on the development of a new UK Corporate Governance Code with an intended implementation date for company reporting years commencing after June 2018. In light of these developments, ICSA and the IA will update this guidance, if necessary, but in any event will review the guidance in the second half of 2019 to measure it against companies’ experience of applying the guidance.

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume VII, Number 297
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About this Author

Hannah Kendrick Corporate Attorney Squire Patton Boggs Leeds, UK
Partner

Hannah leads our Corporate Practice in Leeds and has a wide range of experience advising both public and private companies on mergers and acquisitions, fundraisings, takeovers, restructurings and reorganisations.

Her work varies between UK and cross border and she works closely with executives, in-house legal teams and general counsel both in the UK and globally.

Hannah is a member of the Regional Advisory Group of the London Stock Exchange plc for the North East.

44 113-284-7620
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