Embracing the voice of stakeholders

The corporate reporting landscape and the regulatory framework surrounding it are in the midst of enormous change. Much of it is driven by the need to address the issue of trust in business. Stephen Butler, Director of Stakeholder Engagement, Luminous, explores why the voice of the stakeholder is firmly at the centre of all this, rightly recognising that business does not operate in isolation from society around it.

To help restore the trust deficit, the government implemented secondary legislation in the form of The Companies (Miscellaneous Reporting) Regulations 2018. This legislation has a clear focus on stakeholder engagement, with the government relying on better engagement with stakeholders repairing businesses’ licence to operate.

In PwC’s latest review of the FTSE 350’s published annual reports and accounts, Mark O’Sullivan, Head of Corporate Reporting at PwC, says, “In over 15 years of performing such a review, I cannot remember one where the governance and reporting agenda has been dominated by just a single topic – stakeholders – almost at the expense of all others”. Indeed, PwC even name ‘stakeholder’ as ‘Word of the year’.

However, in terms of progress made by preparers of annual reports, there is still some way to go – albeit, for the reports reviewed, the legislative and best practice changes had not yet kicked-in. There has been a lot of good intention in terms of preparedness, just not too much to back it up.

Analysis of the findings from the PwC report regarding stakeholders shows:

• 62% of FTSE 350 firms at least mention stakeholder engagement – but they need to respond to the outcomes of their engagement.

• 40% of FTSE 350 firms include a reference to engagement with stakeholders in both the strategic and governance reports.

• 21% of FTSE 350 firms do little more than mention stakeholder engagement.

• 10% of FTSE 350 firms include a materiality assessment in the annual report discussing key issues for stakeholders.

At PwC’s launch event for their report, one of the panellists, Deepa Raval, Director of Narrative Reporting at the Financial Reporting Council (FRC), noted in relation to section 172 of the Companies Act that the word ‘statement’ was perhaps a little misleading. It is likely that some of the information might already be included in the existing front end (strategic report) of the annual report, so it is more a case of summarising the key discussions with stakeholders and ensuring that the summary links effectively to the disclosure requirements for section 172.

Responding to the new stakeholder-centric model 

One other qualitative finding within PwC’s report is that the board has a key role in engagement. As the board sets the strategy, the form of adequate dialogue with stakeholders should be reasonably clear in the strategic report. 

For first-time reporters or those looking to strengthen reporting in this area, here are our top tips for achieving best practice. 

• Detail how each key stakeholder group is engaged and the frequency of such engagement. Describe the mechanisms normally used for each of the key stakeholder groups and how the board approaches one-off engagements regarding specific events. 

• If there is a stakeholder panel, one or more directors from the workforce or directors representing the views of the organisation’s employees, describe the process for their appointment, their responsibilities and their reporting lines. 

• Specify the key issues raised by stakeholders and how the organisation has responded. 

• Explain concisely how the board receives input and information from stakeholder engagement and how it influences the board’s decision making. 

• Use signposting and consistent quantitative data, e.g. data from staff or customer engagement surveys, relevant metrics or KPIs, to support the narrative. 

• Incorporate the outcomes of engagement into the organisation’s reporting on its business model, strategy and governance arrangements.