Subject 4. Stakeholder Management

Stakeholder management involves identifying, prioritizing, and understanding the interests of stakeholder groups and on that basis managing the company's relationships with stakeholders. The framework of corporate governance and stakeholder management reflects a legal, contractual, organizational, and governmental infrastructure.

Mechanisms of Stakeholder Management

Mechanisms of stakeholder management may include:

  • General meetings.

    • The right to participate in general shareholder meetings is a fundamental shareholder right. Shareholders, especially minority shareholders, should have the opportunity to ask questions of the board, to place items on the agenda and to propose resolutions, to vote on major corporate matters and transactions, and to participate in key corporate governance decisions, such as the nomination and election of board members.
    • Shareholders should be able to vote in person or in absentia, and equal consideration should be given to votes cast in person or in absentia.

  • A board of directors, which serves as a link between shareholders and managers, acts as the shareholders' monitoring tool within the company.

  • The audit function. It plays a critical role in ensuring the corporation's financial integrity and consideration of legal and compliance issues. The primary objective is to ensure that the financial information reported by the company to shareholders is complete, accurate, reliable, relevant, and timely.

  • Company reporting and transparency. It helps reduce of information asymmetry and agency costs.

  • Related-party transactions. Related-party transactions involve buying, selling, and other transactions with board members, managers, employees, family members, and so on. They can create an inherent conflict of interest. Policies should be established to disclose, mitigate, and manage such transactions.

  • Remuneration policies. Does the company's remuneration strategy reward long-term or short-term growth? Are equity-based compensation plans linked to the long-term performance of the company?

    • Say on pay is the ability of shareholders in a company to actively vote on how much executives employed by the company should be compensated.

  • Contractual agreements with creditors; indentures, covenants, collaterals and credit committees are tools used by creditors to protect their interests.

  • Employee laws, contracts, codes of ethics and business conduct, and compliance offer(s) are all means a company can use to manage its relationship with its employees.

  • Contractual agreements with customers and suppliers.

  • Laws and regulations a company must follow to protect the rights of specific groups.

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