IA and ICSA release joint guidance on stakeholder engagement

The guidance - The stakeholder voice in board decision-making - outlines 10 principles that companies should take into account when making decisions and engaging stakeholders, including pension funds.

The principles include: identifying regularly their key stakeholders; determining which stakeholders they engage with directly; what stakeholder expertise is needed in the boardroom; and to ensure appropriate engagement is made with stakeholders.

It follows the government last month setting out a range of measures designed to improve corporate governance, which included boards having to publish the pay ratio between the chief executive and their average UK worker, as well as a public register to name companies with significant investor opposition.

The IA's and ICSA's guidance is not mandatory, instead setting out "core principles that we believe should guide the way boards approach the issue", but not a "comprehensive range of different approaches that should be considered".

Therefore, it is up to individual companies to choose which approach they believe will lead to effective engagement and better understanding of the effect of their decisions on stakeholders.

The IA's and ICSA's guidance has been backed by the government, with business minister Margot James saying following the guidelines would help towards long-term success.

"We have long been admired as one of the best places in the world to work, invest and do business, and last month's corporate governance reforms will continue to enhance that reputation," she said. "A crucial part of those reforms is making sure companies listen to their workers and customers.

"This new industry-led guidance will help companies to choose how best to ensure those voices are heard in boardrooms up and down the country. This is an important piece of work and I would urge companies to draw on this guidance to help ensure their long-term success."

Investment Association chief executive Chris Cummings added the guidelines promote long-term value creation for investors.

"Investors want companies to take decisions which will generate the best long-term value to their shareholders," he said. "To make such decisions, boards need to hear and take account of the views of their shareholders. Failure to do so could impact on the future success of the company."

ICSA: The Governance Institute chief executive Simon Osborne added this approach would strengthen businesses.

"If taken seriously, stakeholder engagement will strengthen the business and promote its long-term success, to the benefit of stakeholders and shareholders alike," he said. "Paying lip service to engagement is of limited value to anyone and I would urge the boards of all companies, whether listed or privately-owned, to carefully consider the principles laid out in the new guidance."

The two bodies said the guidance would be updated to reflect the government's corporate governance reforms when they come into force, which is expected to be next June, and then again in Q2 2019 when sufficient experience of using the guidelines can be drawn upon as evidence.

Earlier this month, the IA found over 40% of FTSE 100 and over 60% of FTSE 250 firms had dropped quarterly reporting, which will help limit short-termism, and take better account of stakeholder interests.

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• Topics
• Investment
• The Investment Association
• Chris Cummings
• Simon Osborne
• Margot James
• corporate governance
• engagement