The stakeholder voice in board decision making

Foreword

The UK has an internationally respected corporate governance framework that delivers high standards in a transparent and proportionate way. The Government and my Department are determined to build on these strengths, working in partnership with the business community and other stakeholders. As the response to the Government’s green paper of last November showed, there is strong support across business, investor groups and civil society for strengthening stakeholder voice at board level. As well as acknowledging a responsibility towards the society and environment in which they operate, most companies and their boards also recognise that effective engagement with key stakeholders – which may include employees, suppliers, customers, third sector organisations and regulators – is a key component of long-term sustainability and success.

The Government has announced that it will be taking steps to strengthen engagement: firstly by introducing secondary legislation that will require relevant companies to explain how their directors comply with the legislative requirement to have regard to employee and other stakeholder interests; secondly by inviting the FRC to consult on the development of a new Corporate Governance Code principle establishing the importance of strengthening stakeholder voices at board level. We are also bringing forward secondary legislation to require listed companies to set out and explain annually the ratio of CEO pay to that of average employee pay. This will be a valuable extra reporting tool for companies in meeting their existing obligations to take account of wider workforce pay and conditions when setting pay at the top, and something that I am glad that UK investors have also welcomed.

It is boards, however, that must take responsibility for deciding how best to identify, gather and incorporate stakeholder views in the light of their company’s circumstances. I warmly welcome this new guidance on stakeholder engagement by ICSA: The Governance Institute and the Investment Association (IA). It is a practical, industry-led initiative that should help companies – even those who believe that they are doing things well already – to reflect on their current engagement practices and consider further improvements.

I would like to thank ICSA and the IA for their valuable work. ICSA have considerable expertise in the area of corporate governance and standard setting and the IA provides a voice for the UK investment management industry. As such they are very well-placed to assist company boards in thinking through how to ensure they take account of the interests of their key stakeholders when taking strategic decisions. I encourage companies to draw on this guidance, to help them ensure that they are fully meeting their directors’ duties, and to strengthen their corporate governance framework, for their own long-term benefit and that of the economy overall.

Margot James MP, Minister for Small Business, Consumers and Corporate Responsibility

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