Why do we need stakeholder engagement?
There are a number of reasons for effective stakeholder engagement, including regulatory requirements, a moral or ethical imperative as well as strong financial or business reasons.
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 the