Corporate Governance: The Role Of Different Stakeholders
We look at 11 different types of stakeholders and their role in corporate governance, including the board of directors, shareholders, employees, and more
Many stakeholders play an important role in corporate governance — that is, the internal processes, practices, and rules used to control and manage an organization. This includes the company strategy, planning, values, ethics, risk management, compensation, and more.
But each stakeholder group has a distinct role to play, with different interests and differing levels of impact and influence, which is important to keep in mind when managing your stakeholders. So, let’s take a look at 11 stakeholder groups and their roles in corporate governance.
1. The Board of Directors
Out of all the stakeholders, the Board of Directors holds the greatest influence over corporate governance. The Chair leads the Board, and is responsible for its overall management, agenda, effectiveness, and flow of information. The CEO reports to the Chair and is accountable to the Board, with all other members of the leadership team reporting to the CEO.
A company’s Board of Directors’ main role is to ensure the company’s long-term, sustainable success. They need to consider the impacts and interests of all stakeholders while generating value for shareholders. Boards typically meet regularly throughout the year (e.g. monthly or quarterly) to review performance, establish/refine high level strategy, purpose, culture, and values, establish governance frameworks, and more.
Many larger organizations (like BP) will provide information on corporate governance via their website, highlighting the roles, governing laws/policies, reports, codes of ethics, and more.
2. CEO & Management
Corporate governance involves creating rules and controls for your organization that help to guide your leadership team — while ensuring stakeholder interests are in alignment.
This means that the role of the CEO and management team is to take action based on the rules put in place by the Board when making decisions and engage with other stakeholders as the organization’s (and Board’s) key representative. They also consult with the Board on any major decisions and report back to them.
Although most employee stakeholders may not have a direct say on corporate governance issues, these stakeholders have an interest in how the organization’s decisions might impact their salary, job security, and work environment. Plus, employees are expected to carry out the board and leadership team’s plans in line with their strategy, purpose, culture, and values.
If employees aren’t happy with the direction of the company, it could negatively impact their performance and they may start to look for other jobs.
In order to attract and retain good employees, decision makers within the company must understand and take into consideration the needs and expectations of employees.
Shareholders have an important role to play in corporate governance. As part owners, they have a financial interest in the company’s performance. They may also be concerned with the company’s social, environmental, and economic impacts, as well as risk management.
When companies are perceived to have good corporate governance, it can drive up share prices — and of course, the opposite is also true. Because shareholders are less likely to want to buy in or stick around if an organization is badly governed. So, evidence of good governance like communication, accountability, transparency, policies, and consistency can help current and future shareholders gain confidence in the company and its direction.
Banks and other lenders take a similar view to shareholders — they’re primarily interested in risk management and the company’s financial performance. Good governance can help a company raise capital via lenders. But if a company isn’t governed well, these stakeholder groups might start to doubt whether it’s being run well and whether it can be financially successful. And that might impact their willingness to lend money in future.
Nearly every organization has external suppliers they rely on to deliver the products, parts, services, buildings, transportation, or underlying software/infrastructure on which the company runs. It’s important to maintain good relationships with these stakeholders so that the company can continue to deliver quality products or services (and deliver them on schedule).
With this in mind, the role of suppliers in corporate governance is to provide input on the decisions that might impact the supply chain — including what, when, and how their product/service is delivered. These stakeholders will also benefit from reassurance that the organization will continue to need and pay for its products and services over time.
Some organizations may establish an audit committee that supports the Board of Directors and overall corporate governance. Their role is to monitor financial reporting, risk management, internal controls, and audit processes to ensure they’re effective and accurate. These stakeholders play an important role in supporting accountability, transparency, and integrity so that the Board can feel confident in the information being used to guide the decision-making process and govern the company.
Governments and regulators are also an important part of corporate governance. Their role is to ensure that the company adheres to any relevant laws and regulations, while contributing to the local economy. For instance, they may undertake external audits to ensure that organizations are accurately reporting their financials and prosecute organizations (and their directors) for wrongdoing.
This external regulation is important to ensure that rules are enforced fairly — after all, some organizations might self-govern responsibly, while others might not. If members of the public feel that existing regulatory systems are unfair, they may also apply pressure to governments to further increase corporate regulation, change business practices, ensure accountability, and discourage bad behavior.
Media coverage of corporate governance issues has increased over the last two decades, with the media applying pressure to directors and others in positions of power, encouraging them to behave in socially acceptable ways.
The media plays an important role in ensuring that organizations are not only responsive to the needs of shareholders, but also to environmental and social issues. Their coverage can shape corporate policy and support good governance — even if local laws are inadequate.
Community stakeholders include the people (and groups) that live, work, or operate within the same regions as the company. They’re primarily interested in how the company might impact the local economy and environment, and whether they’re acting in a way that is socially responsible.
If community stakeholders are opposed to the organization or project, they may make it difficult to move forward by resisting change, withholding social acceptance, attracting negative attention, or creating delays. And of course, some community stakeholders may have knowledge and resources that could help lead to better outcomes. So, sustainable governance can benefit from involving communities in the decision making process through stakeholder consultation and engagement.
In some cases, community members might also fit into other stakeholder groups, such as customers.
Similar to employees, customers may not have a direct influence on corporate governance, but because customers are the ones that pay the bills, decision makers must consider how the strategy, actions, and values of the company might impact customers. So, any decisions that impact the reliability, safety, value, ethics, and quality of the products or customer experience could lead to the company gaining or losing customers, impacting the organization’s financial performance. As such, it’s well worth regularly engaging and consulting with customers to understand their interests and expectations, and manage the impacts of any planned changes.
How Do You Manage All Your Stakeholders?
It’s clear that organizations need to involve and manage a range of stakeholders — each with unique needs and expectations — as part of effective corporate governance.
So, how do you manage them all?
With so many moving parts and various corporate relationships to manage, the answer certainly isn’t in your email inbox or in a spreadsheet. What you really need is stakeholder management software like Simply Stakeholders.
Our stakeholder software helps you track stakeholders (and stakeholder interactions), conduct stakeholder analysis, map stakeholders, communicate with stakeholders, generate reports, and more. Reach out to the team if you’d like a demo or more information.