Corporate Governance

Diligent Report Shows APAC Boards Increasingly Extend Governance to Stakeholders

APAC boards of directors consider stakeholder needs a key priority, the new report Stakeholders Take Center Stage: Director Views on Priorities and Society  by the Diligent Institute in partnership with the Rock Center for Corporate Governance at Stanford University shows.

As the Diligent report shows, 89% of the 200 company directors surveyed to consider and represent the full range of stakeholder interests. both from shareholders and other stakeholders. And 92% of these board members feel that their company is doing a good job of that representation.

APAC boards have particular sensitivity on this issue, partly in response to pressure from advocacy groups which more than half (57%) of APAC directors surveyed say has influence. But the survey shows that there is a pervasive concern by directors around the world for shareholder rights and stakeholder issues, as most directors (77%) do not believe that shareholder interests are prioritised over stakeholder interests.

Says one non-executive director in response to the survey question: ““Broadly, my role as an independent board member [involves] strategic oversight and management accountability. In each of those cases, we have to take into account many impacted parties, and not just shareholders.”

The survey queried respondents about Blackrock Chairman and CEO Larry Fink’s support for increased prioritisation of stakeholder interests by boards. Fink, as leader of is one of the world’s largest asset managers with $6.84 trillion in assets under management, has great influence on international governance policy.

It is worth noting that almost all (94%) of APAC directors agree with Fink that “Society is increasingly looking to companies, both public and private, to address pressing social and economic issues,” and 65% say they are motivated by this statement to implement new initiatives address these issues.

One respondent qualifies this perspective: ““I want to hear what stakeholder concerns are. I want to hear with equal weight, but I may not act with equal weight. Our job is to decide, take input from all kinds of sources, and make sense of it.”

 

APAC directors reject accusation of ‘short-termism’

Boards are often accused of taking a short-term view, strategising intensely for the bottom line each quarter rather than planning for the longer term in a way that would encompass all stakeholders. APAC directors surveyed strongly rejected the accusation of ‘short-termism,’ with seventy-two per cent of respondents saying their company predominantly considers an investment horizon of three or more years in managing the business. Twenty-five per cent of respondents adopt an investment horizon of 1 to 2 years. Practically none (4%) use an investment horizon of less than a year.

Says one director: “Investment horizon varies a lot by company, depending on where they are on the maturity curve, market influences, what the competitive landscape looks like. There may be times that a company rightfully should focused on the short term, but in general, they should be more focused on the long term.”

And, with an eye to long-term strategy, the environment is directors’ largest long-term worry. Forty-one per cent of directors say that environmental issues, including climate change, pollution, waste, or recycling, are the single most important Environmental, Social and Corporate Governance (ESG)-related issue that has the power to negatively impact their business over the long term.

“The environment cannot speak itself, but there are NGOs and people who speak on its behalf. We treat the environment as effectively represented by those people and monitor the environment as a stakeholder in the same way,” explains one director.

Other issues that are top concerns for directors are increased taxes and regulations (19%), macroeconomic factors that influence trade and the economy (18%), and workforce-related issues including the availability of employees, unionisation, and regulation (14%).

 

Employees are most important stakeholders

In terms of attention to stakeholder concerns, the survey shows that the vast majority of APAC directors (87%) give a priority to employee concerns.

This is not surprising because employees have a direct incidence on the success or failure of strategy and operations. Yet, in Asia and Oceania, there is little interest in creating a board-level position for employee representative of the type found in Europe.

Yet board members do understand the importance of the employee perspective: “If you’re not responding to the needs, wants, and interests of employees, I guarantee customers will suffer. They’ll respond in ways that are negative to the business, and your investors will suffer. This is an ecosystem that is interrelated.”

And another director points out: “If you treat your employees terribly, have a lousy culture, and are not competitive in compensation, how are you ever going to achieve shareholder returns?”

“The World needs your leadership”

It can be concluded from the survey that corporate leaders are taking ownership for leadership in the communities they serve. It is certain that board members are spending attention, time and resources to fulfil these leadership roles. As Larry Fink says in a letter to CEOs at the companies BlackRock invests in: “One thing, however, is certain: the world needs your leadership. As divisions continue to deepen, companies must demonstrate their commitment to the countries, regions, and communities where they operate, particularly on issues central to the world’s future prosperity. Companies cannot solve every issue of public importance, but there are many – from retirement to infrastructure to preparing workers for the jobs of the future – that cannot be solved without corporate leadership.”

 

Diligent provides Modern Governance technology for boards

Modern governance requires hyper-vigilance. It’s ensuring the right processes, tools, and insights are in place to empower good governance and stakeholder empathy. But what does that look like?

At all times, boards and management teams must have a finger on the pulse of today’s landscape. They must know: Where is my organisation considered an outlier? What issues are important to the communities in which we operate? How is my organisation being represented across media outlets around the world? Not only are these insights important for understanding the stakeholder landscape, but these are critical data points for telling the board’s story.

Now, directors have access to tools that can help them navigate this landscape. Diligent Governance Intel aggregates news and information across 80,000 sources, allowing directors to stay abreast of media coverage around their organisation (a primary source by which stakeholders receive company information).

For more information contact info@diligent.com or visit diligent.com/au.

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