What type of relationship does your board have with its stakeholders?
BlackRock CEO Larry Fink’s 2022 Letter to CEOs is a reminder of just how important stakeholder relationships can be—especially in an era where environmental, social and governance concerns are taking on added significance. It may be time for corporate boards to re-examine whether the relationships it currently has with key stakeholders will successfully support the company’s long-term growth.
Companies are currently dealing with many different types of disruptions—adjusting to complications arising from the Covid pandemic, dealing with problems in the supply-chain, guarding against the impact of higher inflation, managing workforce-related challenges and more. Having positive relationships and a reasonable understanding of the concerns of shareholders, customers, employees and other key stakeholders could help companies find solutions to some of these disruptions at critical moments.
In his letter to CEOs, Fink clearly states why the board’s relationship with stakeholders should be given a higher priority:
“Putting your company’s purpose at the foundation of your relationships with your stakeholders is critical to long-term success,” Fink’s letter reads. “Employees need to understand and connect with your purpose; and when they do, they can be your staunchest advocates. Customers want to see and hear what you stand for as they increasingly look to do business with companies that share their values. And shareholders need to understand the guiding principle driving your vision and mission. They will be more likely to support you in difficult moments if they have a clear understanding of your strategy and what is behind it.”
A deeper read of some of the points in Fink’s letter suggests that companies would be well served if they conducted honest assessments of the relationships they have with their key stakeholders—shareholders, customers and employees. Is the information the company wants to convey being communicated clearly and effectively? Is there two-way communication going on, where the company gives information to the stakeholder and receives information from them as well? Would the relationship with these key stakeholders be characterized as friendly or confrontational? Getting answers to these questions should prove enlightening to the board.
Using Stakeholders As A Resource
As companies continue to receive greater scrutiny on how they respond to ESG-related concerns (such as pursuing a net zero carbon strategy or achieving greater board diversity), they should be willing to use any tools at their disposal. Boards may want to consider using their stakeholders as a resource.
Fostering amicable relationships with stakeholders can be beneficial. A close relationship with stakeholders can act as a barometer that could forecast potentially turbulent issues that need to be addressed before they become volatile. And as Fink states, stakeholder support can be critically important as boards face an array of increasingly complex challenges.
Forging a strong relationship with employee groups is extremely important as what is being called “The Great Resignation” reached a peak at the end of last year. News reports state that a record 4.5 million Americans voluntarily left their jobs in November. If your company is losing employees, having a good relationship with your employee groups could help stem the tide and give you insights into what could be done to attract better employees and keep the best ones you have.
Companies would be smart to begin exploring ways they can use their customer data to improve long-term growth. For some companies it might be important to identify which types of customer data consumers are comfortable with sharing. Finding out customer concerns about how their data is used may also be important to the reputation of a company. If consumers feel a company is using customer data to infringe on their privacy or extract greater fees from them, companies may lose the trust of several stakeholder groups. A review of the interactions and communications with your customers might yield helpful intelligence.
Additionally, if boards can foster working relationships with key shareholders, the benefits could be enormous. Some shareholders may have key skill sets and experience that boards can tap into to avert crisis situations from occurring. Also, engaging key shareholders with discussions about the merits of strategies used by industry competitors may give the board insights into the type of business strategies that might be supported in the future. (Engagements such as these must be handled very delicately after a positive relationship has been established.)
There is no denying that positive relationships are key to business success. Improving the relationships between the board and its key stakeholders is a worthy board agenda for 2022.