Continuing the alternate week pattern of posting chapter extracts from the forthcoming third edition of my book “Guide to Organisation Design,” this week’s extract is the opening section of Chapter 7, “Stakeholders”. Next week will be a discussion related to this chapter.
Chapter 7 Stakeholders
If we want to make progress in key areas now, we have to build a multi-stakeholder process, harnessing the appropriate energies. So not only the politicians but also business, the wider civil society, and the trade union movement all have a contribution to make, whether it is at national or at international level. Mary Robinson
Stakeholders are those individuals and groups who have the power to affect positively or negatively an organisation’s financial, social responsibility, governance and environmental performance. Each has a different interest in and perspective of the organisation. Ideally, organisations should serve stakeholders by offering good value to customers; supporting their workers with learning and development; being inclusive in matters of gender and race; dealing fairly and ethically with all their suppliers; supporting the communities in which they work; and protecting the environment. Private sector organisations should do all of these and, in addition, provide value to shareholders.
Dutch cooperative bank, Rabobank’s Planet Impact Loan is an example of the bank working with stakeholders to support the sustainability of the Dutch dairy industry and the wider environment. In an industry-wide collaboration between Rabobank, Sustainable Dairy Chain, World Wildlife Fund and Royal FrieslandCampina, the bank developed the Biodiversity Monitor. Based on their Biodiversity Monitor scores, farmers reap a financial benefit for conserving the environment. Farmers receive both preferential interest rates on the Rabobank Planet Impact Loan and a premium price for their milk from FrieslandCampina. The Planet Impact Loan creates an incentive for farmers to promote biodiversity, a concern that is otherwise often trumped by challenging market conditions.
This example is described as a ‘collaboration’ which implies something co-created with all the participants benefiting either as a calculative choice, opted for because all participants benefit, or a moral commitment, to behave towards people, in this case dairy farmers, in a way which opens opportunities to them. Perhaps it is both a calculative and a moral choice.
The notion of co-creating with stakeholders is different from the more usual approach of ‘engaging’ with stakeholders. Sainsbury’s, a UK retailer, in its 2020 Annual Report presents a 3-column table with the column headings Stakeholder Groups, Why is it important for us to engage with our stakeholders? And How do the Board and management engage with our stakeholders? 
Engagement at this level is often more a form of information giving than a deeper collaborative involvement. Engagement can be one way – Sainsbury’s may tell customers about a product withdrawal, or two-way – Sainsbury’s may ask customers to rate their satisfaction with a newly introduced store layout.
In the UK there is also a compliance requirement on stakeholder engagement. In 2018 the revised UK Corporate Governance Code (2018 Code) and the Miscellaneous Reporting Regulations (MRR) were issued. These aimed to restore trust in business, including by requiring that boards demonstrate how they have discharged their section 172 duties – to promote the success of the company – under the Companies Act 2006. (See blog image).
The 2018 Code states that “in order for the company to meet its responsibilities to shareholders and stakeholders, the board should ensure effective engagement with, and encourage participation from, these parties.” This principle elevates the importance of thoughtful and intentional interaction with stakeholders.
The 2018 Code also introduced a requirement for the Annual Report and Accounts to describe how the interests of a company’s key stakeholders have been considered in board discussions and decision-making.
Supporting the 2018 Code are the six Wates Principles. These offer ‘all companies that are not subject to a formal corporate governance code an opportunity to consider their approach to governance and aspire to meet the Principles. They help companies demonstrate good practice and link it to long-term success of the company.’
Principle Six on stakeholder relationships and engagement reads: ‘Directors should foster effective stakeholder relationships aligned to the company’s purpose. The board is responsible for overseeing meaningful engagement with stakeholders, including the workforce, and having regard to their views when taking decisions.’
The US Business Roundtable (BR) in 2019 published a similar code of governance statement endorsed by 183 of its 192 members. This says that “BR members share a fundamental commitment to all our stakeholders and commit to doing well by our customers, employees, suppliers, and local communities. Each of our stakeholders is essential and we commit to deliver value to all of them, for the future success of our companies, our communities, and our country” (BR, 2019a).
The 2018 code, the Wates Principles and the BR statement all confirm and require effective stakeholder interactions – and although developed with particular types of organisation in mind, the intent behind them is applicable to all organisations – for organisation designers doing either project-based and/or continuous organisation design this means making choices and decisions on how to identify and interact with stakeholders and for what purpose.
Interaction can take many forms – co-creation, collaboration, consultation, engagement, as a compliance requirement and so on – but all forms require intentional activity to achieve workable stakeholder outcomes. This is not easy. Stakeholders have competing interests and what they want may be at odds with what is good for the organisation or for wider society. The example of the RHS (Royal Horticultural Society) and deer culling illustrates the types of complexity involved in stakeholder interactions:
‘The deer would not be moved. Tens of thousands of shrubs, trees and flowers had been planted and these brigands plundering England’s fifth national RHS garden, [Bridgewater] would not budge.
All options were considered. … However, amid the pandemic, resources were limited. … Options exhausted, the sharpshooters arrived. The band of about nine rogue roe deer were humanely dispatched, the authorities said’.
Once news of the cull leaked, though, residents in Salford were outraged. … The incident threatened to tarnish the prospective opening of RHS Bridgewater, which had been delayed by the pandemic. After 8,000 people signed the petition [against culling]. The RHS apologised “We are very sorry for the mistakes we have made in our communication to the people of Salford over the deer. We know we should have got in touch with our local community and Salford city council and discussed these challenges at the time and are sorry that we did not do this.”
The newspaper report attracted 172 comments variously putting the case for and against culling, including one person saying, ‘The only tragedy of this story is that the RHS has thought it appropriate to apologise’.
Reflective question: What constitutes ‘meaningful engagement’ with stakeholders?