Different stakeholders can have varying views and expectations of business in general, markets and the capitalist system, and also of individual companies and their boards. Views of some enterprises may also differ from those of others. Where people have a choice, more favourable opinions in areas such as credibility, expectations, perceived responsible conduct and trust can be advantageous. They may be more willing to seek a relationship with an entity they expect will honour its commitments, deliver on its promises and continue to be current, competitive and relevant in relation to its purpose, priorities and objectives, and their aspirations, concerns and perceived requirements and opportunities.
How are requirements, opportunities and expectations of companies changing in the light of contemporary concerns, existential threats and collective priorities? What might this mean for how boards have traditionally balanced and managed expectations? What may be happening to create new requirements, priorities and expectations relating to them? How might expectations be influenced and how should boards use any advantage they may have in doing this and becoming sought after collaborators in collective action now needed to confront existential threats? What do they need to do differently to align rather than balance interests?
ESG, governance and investment rating practices sometimes focus on risks and implications for companies rather than those for the environmental and social contexts in which they operate. As well as monitoring existential threats and tracking stakeholder concerns, should some boards do more to support collective responses to them? How might they best influence stakeholder expectations of co-operation, collaboration and co-creation and participation in them? In particular, what should be done to change expectations relating to responsible leadership, relationships with the natural world and other areas covered by IOD events?
Many directors have experience of endeavouring to balance the contending interests and priorities of different functions, business units, stakeholder groups and colleagues around the boardroom table. They may have faced competing claims for advantage, an allocation of investment or other available resources. Interests might have jostled for position in terms what is done first and how what is perceived as a corporate pie of cash or value that has been created should be divided up. Allocations have sometimes been perceived as zero sum games, with more for certain interests meaning less for others.
Some interests might be incompatible. For example, an ideal for customers might be more value at a lower price while suppliers might prefer to be paid more for doing less. In such circumstances, directors might stress the benefits to both of them of a continuing relationship and working together across a supply chain to deliver value for money to end customers above that offered by available alternatives at a margin that generates an acceptable return to the parties involved and enables them to stay competitive.
If benefits received from a relationship do not meet expectations and there are better alternatives it may not last. Customers might buy from another supplier. Employees, suppliers and investors could also look for opportunities elsewhere. Boards may have sought to ensure that members of each stakeholder group receives enough to keep them onside, but not so much that insufficient is left for the innovation, investments and development of capabilities a company will need to ensure its own survival and continuing relevance.
Stakeholders can vary in the extent to which they are gullible or canny. Many of those whom directors might wish to have onside may be realistic in terms of what is possible. Satisfaction with a board’s contribution and a company’s performance may reflect their expectations, and whether what is achieved is behind or ahead of expectations. These may reflect their understanding of opportunities and possibilities, obstacles and barriers, and alternatives and limitations. Boards might not wish to promise either too much and raise expectations that cannot be delivered, or too little in relation to the offerings and pronouncements of others.
Some cautious boards opt to stay within the pack rather than breaking away and moving in a different direction until they are more confident that customers and others will follow. Much may depend upon the fluidity of stakeholder expectations and whether they judge that a change is desirable and that a board and company are likely to make a success of it. In relation to responding to existential threats, continuing inadequate collective action may lower expectations as the prospects of success diminish with narrowing windows of opportunity and the costs of required actions increase exponentially with further delay.
Whether adventurous or cautious, a prudent board ensures it is aware of the expectations of different groups of stakeholders and how they are changing in traditional areas and emerging arenas. It is not just companies that may disappoint. As concerns about existential threats such as climate change grow and more people are disappointed with the responses of Government, has an expectation opportunity emerged? Edelman’s 2023 Trust Barometer launched in Davos at the World Economic Forum suggests that in comparison with governments and the media, business alone is now perceived as both competent and ethical. It is also seen as the source of more trustworthy information.
Expectations of Directors and Boards
Edelman’s latest annual survey suggests companies could do more in relation to climate change, cost of living concerns, energy costs and economic inequalities. Boards have some advantages over Governments when it comes to the relative freedom of action they may have and possibilities for direct involvement with individual people, organisations and communities. There may be an opportunity through greater engagement with growing environmental and social concerns to address lingering suspicions some people may have of business and raise expectations by giving a lead in areas that are critical for our survival.
Directors are expected to discharge their legal duties and responsibilities, which can be various and onerous and set out in areas of legislation beyond company law. Depending on the jurisdiction, the penalties for transgression can also be high. Members of some boards may be subject to additional expectations, for example that listing requirements are met in the case of a quoted company or license conditions for operating in certain highly regulated sectors. Actions may be brought against directors by a variety of parties. In some jurisdictions where people are more litigious, some individuals may avoid becoming company directors and prefer to act as executives, advisors or consultants.
Media commentators often say that investors and markets want certainty, even though the context in which most companies operate may be uncertain and volatile. Investor preferences for a steady and regular flow of dividends that hopefully increase over time may encourage directors and boards to favour continuity and the defence and improvement of existing activities and avoid the disruption and investments that moving in a different direction, innovation and the creation of more sustainable alternatives might involve. Assumed investor preferences may be used to rationalise existing positions, priorities and policies.
Directors and boards are expected to obey laws and regulations applicable to activities and operations for which they are responsible. Some of them might also feel obliged or be advised to comply with codes, standards, guidelines and rules that may or may not be mandatory. Autocratic rulers might expect compliance with their wishes and priorities in areas that lie beyond legal requirements, and take ad hoc action against those who not comply. They might also use state controlled media to influence opinions and expectations.
In democracies, while acting in accordance with constitutional requirements, various incentives and inducements beyond legal measures may be used to encourage certain behaviours and responses and discourage others. Opposition parties may propagate differing views and seek to change priorities and laws. Directors and boards may find themselves being asked to comply with measures to which they do not agree. As happens with other groups, some decisions of Minsters or a cabinet might be mistaken or inappropriate.
Parties in power may favour their own supporters or a particular group rather than the public as a whole, or pursue narrow national interests rather than what might be required internationally to confront an existential threat. A board might feel pressured to support an initiative, or meet expectations if it is to be invited to bid, and/or receive Government contracts. What expectations do various stakeholder groups have of Governments? They are sometimes critical of businesses and often quick to tax them and impose additional regulatory burdens upon them. How are they perceived in relation to contemporary existential threats?
The World Economic Forum (WEF) 2023 Global Risks Report and Edelman’s 2023 Trust Barometer findings about concerns, cohesion and polarisation suggest some pessimism. Only 40% of Edelman’s respondents now feel that they and their families will be better off in five years. Their past experience has made people wary and sceptical. IPCC and UNEP pre-COP 27 reports suggest Government responses to the existential threat of global warming are too little too late. Will boards step up, take advantage of the trust advantage that business now have? Will they give a lead in raising hope and expectations in areas people, organisations and communities are now concerned with? Are their pronouncements perceived as credible?
Stakeholder expectations of boards will reflect their track records of action and gaps between previous rhetoric and stated aspirations and the reality of achievement. In relation to accomplishments there has often been a wide gulf between words and subsequent deeds. While corporate boards may have a trust advantage over Government and the media, for some sectors and businesses it may be modest and might need to be increased and accompanied by delivery before they are listened to and can exert more influence. By being seen as sincere and more trusted, their communications may elicit greater and wider support.
How should boards use any trust advantage to become sought after collaborators in the collective action that is now required to confront existential threats? A first step may be to commission an objective assessment of how they are perceived by groups whose support they need to exert more influence, particularly of how any expressions of interest, concern and commitment to action are likely to be believed. Objectives and goals may need to both inspire to secure attention amidst a sea of other voices, and be regarded as achievable and sufficiently significant to be worth backing. Messages crafted and subsequent action should relate to recipient concerns and address any deficiencies in perceptions of their senders.
Certain executive directors may take a lead in communication with particular stakeholder groups. A financial director may focus on investor relations, while sales and marketing and/or service directors initiate communications with prospects and customers and/or users of a company’s offerings. Employees may receive communications from multiple sources depending upon their subject matter and purpose. A CEO may deliver messages to key members of different stakeholder groups and be the face of a company, with certain externally facing roles also allocated to a board chair. On occasion, who is fielded may be a matter of availability and convenience, but key messages should be aligned and consistent.
Over many years, sales, marketing and public relations professionals have sought to use their understanding of human nature and communication skills to influence aspirations expectations and opinions in favour of their employers or clients. The purpose has often been the stimulation of demand and creation of want for what they offer and claim to provide, irrespective of externalities, either negative or positive. Whether or not what is provided may be appropriate, desirable, sustainable or inclusive has sometimes been less of a consideration than the generation of leads and hopefully subsequent purchases and positive cash flows.
Claims made have not always been verifiable. Many companies have also sought to build brands that are unashamedly exclusive, and have used communications and pricing strategies that are blatantly elitist if not divisive. Fortunes have been made by enabling relatively few people to feel special and flaunt a lifestyle that many others might only dream of. In a world of finite resources and inequalities, might differing expectations of ‘haves’ and ‘have nots’ threaten social cohesion when collective action is needed to address existential challenges such as climate change? The WEF 2023 global risks report ranks erosion of social cohesion and societal polarisation as a top ten severity of impact risk over both two and ten years.
As stakeholders become more concerned with existential threats such as climate change, there may be a growing opportunity to align interests around a shared goal of survival. Collective responses are likely to be increasingly needed to confront major inter-related environmental, economic and social challenges such as the requirement to deal with mass migrations away from locations in areas that become uninhabitable for reasons such as drought, coastal inundation or risk of fire and flood. Collaborative advantage may become as important as competitive advantage. For many companies it might be more critical.
Contemporary existential challenges are accompanied by unprecedented business opportunities in areas such as climate change mitigation and adaptation and the need for more sustainable and inclusive communities, societies and infrastructures. For example, mass migrations may need to be accompanied by the design, creation and construction of new forms of city and ways of operating and associated lifestyles that are desirable, fulfilling and sustainable. There is opportunity and potential to create a larger pot of value and benefits, replace negative externalities with positive ones, and build hope, confidence and trust. .
Whether a board is able to influence opinions and expectations, and attract talent and the capabilities and collaborations needed to seize them, will depend upon whether it recognises responsibilities to a wider range of interests and corporate purpose and priorities are aligned with them. As aligned interests assume a higher priority than contending ones, it may be possible to play positive sum rather than zero sum games, where collaboration results in benefits for a wider range of interests, including hitherto excluded and marginalised groups. Enlightened board leadership may transform both expectations and lives.