Prof. Irene-marié Esser

Disclosure vs Participation: Models of Stakeholder Representation in Corporate Decision-Making

Over the past years, voluntary self-regulatory instruments like the United Nations Global Compact and the Global Reporting Initiative have become important vehicles through which companies demonstrate their commitment to a more sustainable future, including adherence to environmental and social rules. Current developments in corporate governance – like Directive 2014/95/EU and the move towards integrated reporting (IR) – have clearly underlined the importance of comprehensive and in depth disclosures where, in addition to established financial factors, non-financial matters (such as environmental, employee, social and human rights issues) are also reported on. In the UK, the disclosure requirements of quoted companies are to be found in company law and securities law and have recently been increased through the introduction of the strategic report. According to the amended CA 2006, the directors of a company must prepare a strategic report for each financial year of the company. The aim of the strategic report is to provide details on how s. 172 CA 2006 has been applied. Section 172(1) provides that a director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard amongst other matters to – the likely consequences of any decision in the long term, the interests of the company’s employees etc. Esser, MacNeil and Chalaczkiewicz-Ladna ( conducted a comprehensive empirical study where they examined the strategic reports of the FTSE 100 companies from 2015 and 2016, using a methodology involving compliance coding. They found that compliance with the provisions of the strategic report is very high, amounting even to super or over-compliance and that the quality of disclosure was high or extremely high.

The question that this paper will address is, with such high levels of disclosure (providing stakeholders with information on how their interests were considered), whether or not additional reform is needed, by way of legislative amendments or soft law, that will increase stakeholder participation resulting in an engaged stakeholder base during board decision-making? This can be achieved through direct board representation, using designated (stakeholder) NED’s or through workplace advisory panels or, more indirect, through board committees considering CSR issues similar to the social and ethics committee in South Africa. Additional provisions in self-regulatory codes, operating on a ‘comply or explain’ basis, on stakeholder relations, are another option. Widening the scope of potential applicants that can institute derivative proceedings is a further possibility that will be explored. This paper will thus evaluate a range of suggestions on the way forward and will form conclusions on whether more is needed to protect the interests of stakeholders.