Engaging with Stakeholders

I'm afraid that this will be a post that will bring up more questions, than answers.

For a long time now, it was legally settled that the duties of the board and the management is owed primarily to the shareholders. However, in the last 10 years, this is no longer the case as the law has moved on . It appears that interests of all stakeholders have to be taken into account , particularly in the UK if not elsewhere. A stakeholder is any entity that is affected by the company’s activities. The Business Roundtable , a lobbying group, in 2019 shared commitments that each stakeholder is essential whether employees, customers, suppliers, community or shareholders.

Whilst the CEO needs to be attuned to shareholders so as not to lose their respect, he or she will need to figure out how much time should be committed to each stakeholder to find out what is important to them?

One supposes that it would depend on the issue being faced . Shareholders are met annually, during the usual governance cycle and the tendency is for the CEO to spend more time with the top 10 investors. Customers that affect the topline, should be given time to hear their views so as to be able to listen to what matters to them and to learn of new opportunities. Then there are suppliers, some are important but not big, and yet those that are big but not important. As for the community within which the company operates, at the very least it would be important for the company to be visible.

More recently, climate change issues are front and centre to investors and shareholders. Companies have to operate in a way that will help slow down climate change for a sustainable environmental future. This might also mean that the CEO will have to take a longer term perspective the implication of which is that the company might not be the lowest cost operator anymore.

To extend the ambit of stakeholder, is the environment also a stakeholder? It is important to understand the development of environmental law, as well as the legal system has now assumed the role of protector and advocate for the environment in many jurisdictions. The distinctive features of environmental law mean there is a wide range of people who can be impacted, with regional differences and uncertainties around environmental harms.

Does this shift the role of business to regulate externalities? How close should the business be to yet another stakeholder – the government? Sometimes it is not a good idea as companies are not substitute for effective government (whose role is to tax eg pollution and to provide the social safety net) . There is a balancing act that the modern CEO needs to strike.

P/S this photo is of clouds formation - harkens back to a time in Miami when the sailors would refer to this as "salmon scales" - perfect weather for sailing portends.

Location: Kuala Lumpur, Federal Territory of Kuala Lumpur, Malaysia

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