Business Scholarship Podcast
Brett McDonnell on Stakeholder Engagement
Tue May 02 2023Description
The episode explores the central debate in corporate governance between shareholder and stakeholder interests. It focuses on stakeholder engagement methods, challenges, and potential improvements. The study highlights the value of stakeholder engagement as a form of accountability and information gathering within companies. It also discusses the potential for expanding stakeholder governance and involving stakeholders in decision-making processes.
Insights
Stakeholder Engagement Methods
Employees are the most engaged group, followed by customers, local communities, and philanthropic groups. Lower level engagement such as meetings and surveys is more common. Some stakeholder groups have representation on the board. There is a growing trend to tie executive compensation to stakeholder issues.
Challenges and Potential Improvements
Voluntary stakeholder engagement can lead to cherry-picking and inconsistent reporting. Clearer disclosure is needed for executive compensation. Involving employees in corporate governance has potential for further improvement.
Expanding Stakeholder Governance
Companies are already engaging stakeholders at low levels, but there is potential to involve them in decision-making processes. Ongoing research and debate are needed to determine the accomplishments of stakeholder engagement.
Chapters
- The Central Debate in Corporate Governance
- Stakeholder Engagement Methods
- Challenges and Potential Improvements in Stakeholder Engagement
- Expanding Stakeholder Governance
The Central Debate in Corporate Governance
00:06 - 07:16
- The central debate in corporate governance is whether firms should be governed exclusively for the benefit of shareholders or also for the benefit of stakeholders.
- While there are established structures for shareholder engagement, the question remains on how management engages with non-shareholder stakeholders.
- The article focuses on stakeholder governance and involving employees in corporate governance.
- There has been recent talk about stakeholder governance, but it mostly focuses on taking stakeholders' interests into account rather than involving them in governance.
- The author's motivation comes from discussions with shareholders and managers involved in shareholder engagement, where some mentioned engaging with stakeholders as well.
- The main research questions are what stakeholders companies engage with, what means they use to engage with them, and how this engagement is incorporated into internal corporate governance.
- The methodology used was analyzing public disclosure documents from the top 100 companies on the S&P 500 to see what they say about stakeholder engagement.
- Most of the information comes from voluntary disclosure reports on social responsibility, while additional information was found in annual proxy statements submitted to the SEC before shareholder meetings.
Stakeholder Engagement Methods
06:51 - 14:33
- Annual reports on social responsibility and annual proxy statements were used to gather information on stakeholder engagement.
- Self-disclosure by companies in these documents may lead to biased or incomplete information.
- Employees are the most engaged group, followed by customers, local communities, and philanthropic groups.
- Lower level engagement is more common, such as meetings with stakeholders and surveys of employees and customers.
- Employee research groups or affinity networks are prevalent in large companies.
- Partnerships with non-profit organizations and standing councils of employee representatives are less common forms of engagement.
- Stakeholders do not elect their own representatives to the board in the United States.
- Most companies designate a board committee for overseeing stakeholder concerns, often the nomination or governance committee.
- Some stakeholder groups have representation on the board, such as non-profit leaders, former government officials, and academics.
- Corporate sustainability officers and chief diversity officers are new officer roles focused on stakeholder issues.
- There is a growing trend to tie executive compensation to stakeholder issues, but disclosure is often unclear.
Challenges and Potential Improvements in Stakeholder Engagement
14:06 - 21:56
- The study is focused on input rather than output.
- Previous research on shareholder engagement regarding climate change showed that it had little impact on companies' actions.
- As stakeholder engagement becomes more embedded in companies, there is hope that it will influence decision-making.
- Voluntary stakeholder engagement can lead to cherry-picking and inconsistent reporting across firms.
- Improving disclosure could involve standardizing voluntary disclosure through mandatory disclosure and asking companies to outline their main stakeholder groups and engagement methods.
- Clearer and more precise disclosure is needed for executive compensation, particularly regarding non-financial measures.
- This paper contributes by highlighting the existing phenomenon of stakeholder engagement and its value as a form of accountability and information gathering within companies.
- There is potential for further improvement in stakeholder engagement, with a focus on involving employees in corporate governance.
Expanding Stakeholder Governance
21:30 - 24:58
- Stakeholder governance can involve both governance for stakeholders and governance by stakeholders.
- Companies are already engaging stakeholders at low levels, but this area deserves more attention from corporate governance scholars.
- There is potential to involve stakeholders, especially employees, in the decision-making process itself.
- The normative question of what is being accomplished with stakeholder engagement needs ongoing research and debate.