Why do we need stakeholder engagement?

Legal and regulatory reasons

Principle 3 of the revised Code for Sports Governance requires that

‘organisations shall be transparent and accountable, engaging effectively with stakeholders and nurturing internal democracy’.

Requirement 3.3 further states that

‘Each organisation shall develop and deliver a strategy for engaging with, and listening to its stakeholders (including elite athletes where appropriate). The Board shall annually review and monitor its delivery’.

The Code explains that transparent, clear and honest communication is essential to leading and representing others successfully, helping to build trust, particularly where stakeholders (including the public) have an active interest in the activities of the organisation.

The Companies Act 2006 gives an indication of some of the stakeholders to be taken into consideration when directors are making decisions. s. 172 requires that, while boards have an overarching duty to promote the success of the company for the benefit of its members as a whole, directors should have regard to:

a) the likely consequences of any decision in the long term,
b) the interests of the company’s employees,
c) the need to foster the company's business relationships with suppliers, customers and others,
d) the impact of the company's operations on the community and the environment,
e) the desirability of the company maintaining a reputation for high standards of business conduct, and
f) the need to act fairly as between members of the company.

Directors must use their judgement as to which of these factors are likely to promote the success of the organisation and the weight to be given to each of them. Balancing the impact that decisions will have on these often disparate groups (and others besides) is a challenging part of the director’s role.

From January 2019, directors of ‘large’ companies under the Companies Act 2006, including private and AIM-listed companies, are required to produce a statement in the strategic report describing how they have had regard to the matters set out in s. 172 a)–f) when performing their duties under that section. ‘Large’ is defined as meeting two of the following:

• A turnover greater than £36m net
• A balance sheet total greater than £18m net
• More than 250 employees

In addition to the specific requirements in s. 172, other general duties on directors in the Act may also be relevant to the way the board addresses the interests of the members and other stakeholders. These include the duties to comply with the company’s constitution, to exercise independent judgement, and to exercise reasonable care, skill and diligence.

While most sports organisations, including those registered as companies limited by guarantee, do not have shareholders, the principles of CA 2006 and the FRC’s UK Corporate Governance Code still apply.

Moral and ethical reasons

It is good practice to have clear, open and reciprocal communication with stakeholders. Without this, our sports organisations may not be aware of how their policies, actions and structures have negative impacts on different groups of people, individuals or members. Organisations in receipt of Exchequer and National Lottery funding should consider that the general public may have a legitimate interest in hearing how that money is spent and should strive to operate as openly and transparently as possible.

In the Code for Sports Governance, organisations are also encouraged, from a diversity and inclusion perspective, to think about cultivating ally relationships with other organisations and groups that can actively support, champion and challenge the ambitions set out in their Diversity and Inclusion Action Plans, and improve the participation of underrepresented groups.

The revised Code also requires (5.2) that a board ensures that it factors the impacts on stakeholders, wider society and the environment into decisions it makes and the actions implemented by the organisation. Environmental, social and governance issues are growing in importance in all sectors, and sport is no exception. Organisations of all kinds must take into account the repercussions of their actions and activities at both local and wider levels – and seek to gather information on this.

The business case for stakeholder engagement

The moral and ethical reasons for stakeholder engagement are not separate from the business case – with genuine and respectful communication with your stakeholders, real economic and business benefits result. Stakeholders offer a wealth of knowledge that may be of use to an organisation, and they can provide financial support in terms of participation, fundraising, sponsorship and repeat business. Engagement with stakeholders builds strong communication channels, and in turn, the sports organisation develops a strong reputation for actively engaging with stakeholders. These relationships are invaluable to the sports organisation’s operation and future success and can improve the quality of decision making in any organisation.