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Stakeholder risk must become a board issue

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Corporate South Africa has gradually been coming to terms with the concept of stakeholder-inclusive governance, as introduced by King III. King IV (now in draft form) looks set to continue this model. Stakeholder inclusivity offers a good model for ensuring corporate sustainability in today’s world. The next step, says Junita van der Colff, Advisory Manager at ContinuitySA, is to elevate stakeholder risk to the board agenda.

As defined in the King IV draft, the stakeholder-inclusive model requires the board to consider all a company’s material stakeholders when making strategy and taking decisions. Stakeholders’ legitimate interests, needs and expectations are considered to have intrinsic value, and are not just considered narrowly in the light of shareholder interest.

“Considering the wider stakeholder group when making strategy is critical to a company’s sustainability, in today’s world, something that King III introduced,” Van der Colff argues. “Companies and government entities alike are no longer automatically trusted or believed, and so obtaining the so-called ‘social licence to operate’ becomes both critical and difficult to obtain. As the Edelman Trust Barometer shows, reputational risk is real, and new ways of wielding influence with this wider group of stakeholders have to be found.”

The findings of the 2016 Edelman Trust Barometer strongly suggest that traditional patterns of influence in society have become inverted. Elites, including company directors, have largely lost their traditional ability to influence opinion. “Today, influence decidedly rests in the hands of the mass population,” says the report—a group that is also the least trusting.

The prevalence of smart mobile devices and the dominance of social media, adds Van der Colff, means that an organisation’s reputation is more vulnerable than ever before. It needs to develop both the channels and spokespeople that will reach the wider stakeholder group through a range of channels.

“The first step in achieving this is to understand what stakeholders’ expectations are, and that these expectations have been integrated into the way the organisation does its business,” she says. “The research shows that generally stakeholders want an organisation to contribute to economic growth and the greater good. It therefore follows that when a company or government entity makes decisions, it needs to bear these considerations in mind. If it does not, it risks damage to its reputation and brand, with all the negative consequences that entails.”

The flipside, as the Edelman Trust Barometer research shows, is that this trust gap actually offers an opportunity for savvy businesses to seize a position of leadership that takes into account the expectations of this broader stakeholder group.

“Stakeholder risk has become so critical that I think there is a good case to be made for it to become part of the corporate risk and opportunity programme, and find its way onto the board agenda—simply overseeing stakeholder relationship management, as recommended in King IV, may not be enough,” she concludes. “A company’s reputation has never been more vulnerable, nor more important.”