The Nigerian Code of Corporate Governance – Principle 27 – Stakeholder communication

In today’s socio-political climate, cultivating the trust of stakeholders is critical to corporate success. Public and media scrutiny of what organisations say and do is immediate, relentless and unforgiving (where these are perceived as negative). It is therefore more important than ever for businesses to clearly articulate and communicate corporate actions, recognising that accountability is to a wider spectrum of stakeholders, beyond customers (clients) shareholders and prospective investors. Good corporate governance initiatives facilitate effective monitoring and provide incentives for the Board and Management to pursue objectives that are in the interest of the Company and its shareholders. Regulators are the gatekeepers of corporate governance and are tasked with protecting stakeholders, whilst ensuring that the Board and Management have sufficient latitude to perform their responsibilities and create value for shareholders.

A key provision of the NCCG is the explicit recognition of the Board’s duty to consider the wider stakeholder responsibilities when promoting the success of the Company. The thrust of the provision is clear viz – adequate communication of a Company’s affairs to its shareholders – and wider stakeholders – is an integral part of a Board’s leadership role. Timely and continuous disclosure of material information on the activities of the Company ensure a balanced and fair view of the Company and assists investors to effectively monitor compliance with the Code. It therefore behoves on the Board to ensure that Annual Reports and all channels (website, investors’ portal, marketing literature, etc.) of communication contain accurate and up-to-date information on the Company’s affairs.

In the scheme of things, it is expected that the focus on wider stakeholder engagement will prompt companies to explain how and to what extent they consider the interests of their employees, suppliers, customers and other stakeholders and how these impacts their decision-making process. Stakeholder engagement mechanisms may range from formal events, special committees, external assessments and customer satisfaction surveys. The Annual Reports present a prime opportunity for the Company to present its story.

However, given the significant regulatory disclosures required to be covered therein, it can very easily be considered a legal and regulatory box-ticking exercise (fulfilling all righteousness), an approach which companies should consciously seek to avoid. Good engagement with stakeholders is integral to helping them understand the issues facing the Company, how it is addressing key areas of public concern and why Directors believe their actions are in the best interest of the business and stakeholders. It will provide an opportunity for example to discuss how the Board and Management are responding to a crisis such as COVID-19, the Business Continuity Plan and how the operations of the Company have been or will be impacted going forward.

The Code also recommends the establishment of an Investor’s Portal on the Company’s website, where the Communication Policy as well as the Annual Reports for a minimum of five immediately preceding years and other relevant information about the Company should be published and made accessible to the public in downloadable format. The essence of publishing the Communication Policy is to provide clarity on how to go about requesting an engagement, where enquiries should be directed and guidance on the most efficient way to have a conversation about stakeholder concerns.

Feedback from adequate stakeholder engagement can significantly impact on the quality of Board decisions. Whilst it may be impracticable for the Board to engage a large number of stakeholders directly, the digital space provides a platform by which it can have access to stakeholders’ unfiltered views on issues such as Board composition, strategy, risk exposure, remuneration and other burning issues that may be of concern. Good communication will build credibility with shareholders and potentially enhance corporate strategy.

For shareholders, it is important to understand the companies in which they are invested. This understanding extends beyond receiving mandatory disclosures to having a transparent process for engaging on issues that are important to them. Shareholders are however not expected to interfere in the management of the Company’s operations or use access to push for short-term gains over sustainability and long-term value creation. It is important that shareholders and Board members engage effectively in the shared pursuit of top-rate governance.

In getting ahead of the curve, best practice dictates that companies should adopt Stakeholder Management and Communication Policies that ensure investors have access to timely and accurate information, qualitatively and quantitatively, and more effective ways of expressing their reaction to the information that is disclosed. Reliable information via transparent disclosures, policies and insights into Management’s priorities, will allow investors to balance risks and allocate capital accordingly. In turn, better governance practices will promote the Company’s ability to attract funding to grow the enterprise.

How may you obtain advice or further information on developing a Stakeholder Management and Communication Policy for your company?

The governance team at DCSL is well equipped to assist in developing a Stakeholder Management and Communication Policy, conduct bespoke Board training and evaluate your business practices to ensure full compliance with the provisions of the NCCG. You may contact the Governance team at DCSL, through: [email protected]. Also, forward comments and reactions to [email protected].

BISI ADEYEMI