IMHO: The shift to stakeholder primacy

OPINION: We are witnessing the beginning of one of the most significant shifts in governance in history – the shift from shareholder to stakeholder primacy. This is a fundamental change in the nature and purpose of business, from focussing primarily on maximising shareholder value to a much broader set of priorities that take into account the interests of all stakeholders including employees, customers, the local community and the environment.

Recently, debate about the changing role of governance has been centred on the tangible implications for boards such as new regulations, disclosure, measurement, and reporting, including progress against environmental, social and governance (ESG) factors that measure a company’s progress towards sustainability in its widest sense.

However, little attention has been given to how directors themselves, as individuals, are having to prepare and adapt to these changes. How can directors best prepare themselves for this fundamental shift in emphasis?

The insights and suggestions below are based on my work with many of the country’s leading CEOs and directors who are already grappling with these challenges.

1. Be ready to go beyond the status quo

We all know that directors are competent and busy people, used to making decisions, taking action, and getting things done. However, previous business success and skills are no longer enough to prepare directors to navigate future governance decisions. What got you here will not be enough to take you where you need to go.

A common refrain I hear from my clients is that their beliefs and long-held assumptions are being challenged more than ever before. One director explained it as having to "unlearn things" – to test assumptions, identify biases and confront old ideas that are past their use-by date.

Rather than relying on conventional ideas, it means thinking beyond the status quo and being courageous enough to stop, think and genuinely reflect.

The process of challenging assumptions doesn't just happen – it needs space, support and encouragement. It requires quite a profound process of self-examination. However, this is not about endless navel-gazing. It is about making time to refresh our thinking and explore opportunities for genuine growth and development.

2. Actively embrace different perspectives

Driving long-term business success in the era of stakeholder primacy means embracing wider stakeholder perspectives. As well as considering the financial bottom line, directors have to seek out and understand the broader impact of day-to-day business practices.

It is easy for busy directors to become insulated from experiences and viewpoints outside their own business milieu. Until recently, boards and executive tables have lacked diversity and alternative perspectives. Many still do.

Today, it is vital to understand other perspectives, to develop a willingness to move outside familiar territory and walk in someone else’s shoes.

It means postponing judgements and actively challenging long-held, seemingly common-sense assumptions. By dropping a knowing/telling mode, we can develop an attitude of curiosity and ask more questions.

This is easier in theory than in practice for directors whose previous success has been based on their ability to provide confident and definitive answers.

3. Connecting with a purpose and knowing what you stand for

To remain profitable and successful in the future, businesses will need to focus on solving real problems for people at the same time as protecting the planet and serving society. This will require a clear sense of purpose.

Employees and customers will expect to see their business leaders demonstrate values aligned with an organisation's purpose. Directors will be more visible and have their personal views made public on a wide range of issues such as social justice and equality, environmental sustainability, corporate responsibility and citizenship.

Some directors tell me they feel ill-equipped to speak publicly on broader social issues, and some haven't had to articulate their personal values clearly in the past.

Uncovering and reconnecting with our core purpose means surfacing values, and it takes sincere reflection. To live according to values and to work with real purpose requires deep thinking and self-awareness. It is about knowing who you are and what you stand for.

Exploring values and purpose can lead to a fundamental examination of life choices to date and can sometimes bring individuals to a crossroads in thinking about their career and what matters most in their life for themselves, their families and the legacy they want to leave.

4. Understanding how to lead when there are no easy answers

Governance in the era of shareholder primacy, although complicated, had a sense of certainty. Directors could rely on rational and logical processes based on analysis and step-by-step plans.

Stakeholder primacy means that the governance rule book can't be the only guide to solving complex business challenges. There will be fewer straightforward right or wrong answers. Directors must go beyond the typical business trade-offs to navigate fundamental tensions such as the need to drive future growth while also protecting the environment.

Directors will benefit more from developing additional strategies that will allow them to be more at ease with unresolved tensions, to stay steady when there are no apparent answers.

Developing patience and having emotional resilience in uncertainty will allow better solutions to emerge. Sometimes the process of consulting and engaging with stakeholders will be as important as the final outcome of a decision.

Are you ready?

At this time of change, board directors need as much support and guidance as the executive leaders managing the business at the coalface. Directors can test their readiness for this by asking themselves a number of questions:

When did I last fundamentally challenge my perspectives and core assumptions?
How and where can I informally test out new thinking and get out of my comfort zone?
Do I have places out of the public eye where I can candidly share the challenges and frustrations that I face in adapting to the new context?
Where do I feel the most vulnerable and out of my depth on issues I face in the boardroom?
When do I find myself becoming defensive? What are my triggers that make me close down to new ideas?
Do I know what I believe in, and do I know where I will put a stake in the ground?

As stakeholder primacy gains momentum in corporate governance, some directors will embrace the changes and make sure they are ready. They will be able to balance their past business acumen with a new and deeper wisdom about the ways that businesses will need to respond to wider stakeholder expectations in the future. These are the leaders who will thrive in governance roles in the future. And if we do it right, New Zealand has a unique opportunity to lead world-class governance.

About the author

Loretta Brown MInstD is a founder, director and lead coach at the Coaching and Mentoring Centre working with organisations and individuals across the public, private and NGO sectors in New Zealand and internationally to provide training, and one-to-one executive leadership coaching.

The views expressed in this article do not reflect the position of the IoD unless explicitly stated.

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