The project follows the lead of the government’s green paper on corporate governance reform which explores how employees and other stakeholders could be better represented at the top of UK’s listed companies. The prime minister, Theresa May, had suggested that workers could have a place in the boardroom – strongly supported by the TUC – but the consultation paper proposes other options to ensure that stakeholders’ voices are considered by boards.
Meanwhile the FRC has suggested it may need extra powers to to ensure company directors are meeting their obligations in respect of section 172 of the Companies Act 2006 which spells out the wider obligations that directors should be meeting.
Responding to these developments ICSA and the IA will publish guidance later in the year which aims to identify existing best practice and produce practical guidance to enhance understanding of the interests of employees and other stakeholders, in accordance with board duties under Section 172 of the Companies Act 2006.
Peter Swabey, Policy and Research Director at ICSA: The Governance Institute, said: “We agree with the government that the views of stakeholders need to be heard by boards. Companies benefit from having constructive engagement with their employees, customers and other stakeholders, and from having a broad range of perspectives around the boardroom table”
“Many companies already do this effectively, but our guidance is intended to assist those boards that feel the need to act now to improve their engagement with and understanding of the views of their stakeholders, rather than waiting for the government or the FRC to complete any actions they might take as a result of the current consultation.”
Andrew Ninian, director of corporate governance at the Investment Association, added: “Boards have a collective responsibility to make better long-term decisions for all their stakeholders. Our joint guidance will be designed to ensure that the broadest range of views and perspectives are heard around the boardroom table.”
The bodies said that the guidance will identify different approaches to stakeholder engagement for companies to consider, summarising the issues to be addressed and the practical steps to be taken. These will include the different approaches identified in the government’s green paper.
The guidance will cover the ways in which companies can identify non-executive directors with relevant stakeholder experience; the processes by which boards can receive the views of their key stakeholders; and how training and induction can be used to enhance directors’ understanding of their duties and the interests of, and impact on, different stakeholders. Additionally there will be a set of options for companies to appropriately report how they have fulfilled their duties in this area.