5 Ways Directors Can Enhance Stakeholder Engagement

In recent years, companies have been actively enhancing their stakeholder engagement efforts, influenced by international initiatives such as the concept of enlightened shareholder value in the UK and the purpose of a corporation redefined by the Business Roundtable in 2019.

Recent geopolitical events like the global pandemic, tightening labor markets, civil unrest, among others, have brought newfound awareness to stakeholder engagement and the concept of stakeholder capitalism. Moreover, this period has brought with it a more inclusive, stakeholder-centric perspective to creating shareholder value.

The board plays an important role in improving stakeholder engagement. As the body responsible for defining a company’s mission and purpose, as well as its long-term success, it is important for boards to define tone from the top, deliver the frameworks and oversee performance aligned with the company’s long-term goals. More and more, we are learning that stakeholder-centric companies may wield greater influence and trust.

I outlined the benefits of improving stakeholder engagement as a guest on The Chartered Governance Institute UK & Ireland’s podcast, where I shared five helpful tips for businesses looking to enhance their efforts in 2023.

The Concept of Stakeholder Engagement
Stakeholder engagement is the idea that successful companies should be defined by more than increasing share prices or generating shareholder capital. It advises companies to address additional stakeholders and their needs, usually encompassing employees, customers, suppliers and local communities, seeing value in acting on both their needs and shareholders’ needs to create long-term value.

For those looking to improve their application of the concept, or to engage more effectively with their stakeholders in general, it is important to consider the breadth of tools at their disposal.

5 Tips to Improve Stakeholder Engagement

1. Create a stakeholder map for board decisions and responsibilities

Map out who your company’s stakeholders are. Companies have a variety of stakeholders, but some will be more pertinent to specific decisions than others. When boards discuss important initiatives or changes, identify the stakeholders impacted and consider each in turn.

2. Find ways to bring the voices of different stakeholders into the boardroom

As boards think about how to engage and who to engage with, they should also ask themselves: Does our composition reflect the stakeholders identified? Do we have individuals who can act as champions for different stakeholder groups or otherwise represent their interests in discussions? How do we ensure we can accurately understand different stakeholders’ perspectives as a group? Building stakeholder considerations into skills and composition matrices and board education programs will help those voices to be heard when they need to be.

3. Look outside of the boardroom for potential improvements

Introduce internal and external resources for the board to connect with. Look beyond the boardroom and identify individuals outside of the company who can share valuable insights. Fresh ideas spur creative solutions, and external resources can help board members work through complex and sensitive problems with a unique, educated perspective. Consider specialist advisors or standing advisory panel members. Think about how to facilitate interactions with stakeholder groups directly, such as through meeting or event attendance.

4. Measure stakeholder needs and solicit feedback continuously

It is important for companies to develop more sophisticated data points to better understand their various stakeholders. The power here is in qualitative data points—understanding the journeys and outcomes, hearing that voice figuratively or literally, and continuously reflecting on the appropriateness of those data points. Boards need measurable stakeholder insights to predict and evaluate stakeholder impact from potential decisions.

5. Adapt and evolve as needed

Boards should challenge themselves. They need to be continuous and consistent learners, staying engaged with the needs of their various stakeholders. One way to do this is to participate in and schedule regular trainings in important areas for the company and its stakeholders, such as evolving risk areas like cybersecurity and climate risk. Another is to think of interactive ways to engage on important initiatives under their purview, like undertaking site visits for important change projects or connecting with management outside of the boardroom to better understand progress, challenges and impacts of key activities.

Through the Nasdaq Board Advisory team’s work with boards on performance and effectiveness, I find that directors are often excited and willing to widen their stakeholder constituencies in order to add more value when and where it counts. Boards are increasingly aware of and concerned with the potential benefits of engaging meaningfully with stakeholders, and the risks of failing to do so. Around the globe, Nasdaq’s Board Advisory team sees boards exhibit more agility, tech savviness, risk awareness and forward-looking perspectives.

Furthermore, as boards become more focused on stakeholder engagement, the more these activities will be naturally aligned with a board member's duty to exercise reasonable care, skill and diligence. The goal is to frame a company’s true performance and sustainability through the lens of impact on all stakeholders. The natural means by which to consider these impacts and understand your stakeholders is to engage with them from the start.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.