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Clifford Chance

Clifford Chance

Stakeholder governance

Stakeholder-driven approach to embedding ESG into decision making

In the current business climate, the ability of boards and other key decision makers to have visibility of, and to take accountability for, the full range of risks, opportunities and threats means that stakeholder governance has never been so important and scrutinised across the globe.

Coupled with this, investors and wider society are increasingly of the view that for business to thrive long term, it must have a defined, authentic purpose and set of values beyond profit generation, which are fully integrated into the corporation's culture, governance structure, decision-making and long-term strategy.

Business also recognises that often its greatest source of risk, and value, often sits outside its immediate corporate boundaries, within its supply and value chain.

Stakeholder governance therefore requires business to identify, engage with and understand the perspectives of all their material stakeholders on key strategic issues, decision-making and investments. When done well, this stakeholder governance strengthens a business and ensures its long-term success - to the benefit of shareholders and broader stakeholders.

When done poorly, it can cause major financial and reputational damage.  As we have seen from the rise of social media empowered stakeholder activism.

We advise clients across the full-spectrum of stakeholder governance-related opportunities, risks and compliance issues.

Our stakeholder governance services

1

Investor and stakeholder reporting and engagement

With ever-increasing reporting obligations and expectations in relation to accountability and transparency on ESG issues being placed on businesses, we provide strategic advice and support across a full spectrum of reporting obligations taking a holistic approach to stakeholder engagement and communications.

We help our clients navigate the complexities of narrative reporting in their annual reports and financial statements, which together with our expertise across a wide range of reporting obligations helps to provide a consistently high standard of challenge across all communications with stakeholders.

2

Managing and engaging with active investors

Investors are increasingly well-informed and incentivised by pressure from both their own stakeholders and wider society to actively hold boards to account on sustainability and ESG issues.

We work alongside clients in preparing for and making effective use of engagement opportunities with both their institutional and retail investors who are active in seeking to hold boards to account on their ESG obligations and aspirations.

Increasingly common examples are open letters to CEOs from institutional investors, requisitioned resolutions by pressure groups on matters such as climate change which are openly supported by institutional investors and threats that support may be withdrawn from certain resolutions put to shareholders annually We can provide up to date market insights from across the globe and advice on how best to engage with these key stakeholders, using our experience of advising on with these issues in jurisdictions (such as the US and the UK) where these issues have been on the agenda for longer to assist clients who may be experiencing these issues for the first time.

We also have recent experience in working with companies on planning and preparing for proxy contests in relation requisitioned resolutions at public shareholder meetings and actively engaging with proxy advisors and investors on these contentious (and often publicly fought) proxy campaigns.

3

Board and senior management succession planning

Inclusion and diversity are important at all levels of an organisation. Embedding an inclusive and diverse culture is strongly influenced by both the composition of the board and diversity at senior management level making succession planning critical in any inclusion and diversity strategy adopted by a business. We offer strategic advice on a number of inclusion and diversity areas.

Stakeholders are increasingly making their views known on inclusion and diversity policies with some institutional investors setting out clear parameters on what they expect to see in terms of board composition and concrete steps being made on creating a more inclusive and diverse culture.

We have extensive experience advising on succession planning strategy, formulating proposals which are consistent with latest market practice and reflective of wider stakeholder interests in the business as well as implementing succession plans by navigating the necessary governance steps including public disclosures.

In addition to our legal expertise in this sensitive area, we are also able to provide our strategic insights into managing successful and effective implementation of succession plans which ensure seamless transitions between directors and senior management.

4

Managing risks in relation to ESG decision-making

With increased scrutiny and transparency in relation to ESG decision-making, there is an increased threat of challenge from stakeholders. This challenge can take many different forms including legal challenges through the Courts, open letters to business leaders, political pressure and exclusion from high profile accreditations and organisations, all of which have the potential to cause significant reputational damage to a business.

Litigation by investors against companies is on the rise. Long a staple of the US market, other jurisdictions globally are seeing significant growth in this area. In some cases this is driven by recent changes in law making it easier to bring securities litigation claims, but also a more developed and larger global litigation funding market making this course of action more accessible allowing investors to bring class or group litigation actions without the burden and risks of significant litigation costs.

Responsible business is important and working with clients to understand their impact on the environment, the support they can provide their people with and the benefits they can provide to the communities in which they operate is key to managing and mitigating risks relating to ESG.

Failings in governance which lead to ill-informed decisions and inadequate reporting and transparency are more likely to lead to challenges including litigation against a business. We have global legal expertise on good governance practice which, combined with our market-leading expertise in ESG matters, means we can support businesses in understanding ESG risks and provide strategic insights into how they can develop and successfully implement ESG strategies.

Our expertise on reporting obligations means we can continue the journey with the business by assisting with engagement with stakeholders through reporting on and explaining through narrative reporting the ESG measures implemented by the business.

5

Transactional issues

When businesses are considering acquiring another business or entering into a partnership with a new business partner, it is key that the business considers the risks it may be acquiring or opening itself up to by entering into a partnership with a third party. Key to this consideration is undertaking appropriate due diligence which covers human rights, data protection, employment matters (including inclusion and diversity matters), environmental (including carbon footprint and mitigating actions on climate change risk) and compliance.  

We can assist in undertaking due diligence on many of these areas as well as understanding the risks presented, considering solutions and mitigations to any identified risks and assisting with remediation actions.

Diversity and inclusion on listed company boards and executive committees: FCA consultation on new reporting requirements

On 28 July 2021, the FCA launched a consultation (CP21/24) on proposals to improve transparency for investors on the diversity of listed company boards and their executive management teams. The proposals address the lack of standardised and mandatory transparency in this area by establishing better, comparable information on the diversity of boards and executive management against the background of a growing interest in ESG matters in investment decision-making, as well as wider social concerns.

Find out more about Diversity and inclusion on listed company boards and executive committees: FCA consultation on new reporting requirements

Recent client highlights

  • The German Medical Technology Association (BVMed) on developing the 'BVMed Compliance Standard' for the MedTech sector. The new standard outlines the key elements required for an adequate compliance setup and offers companies practical tips and suggestions.
  • A UK holding company on the creation of their ESG policies and related governance structures. This included advice on the creation of a board sub-committee and a reporting line from the individual businesses as well as training for the client’s teams.
  • A consumer goods company on its “Governance for Growth” Programme, including a gap analysis of its corporate and compliance governance framework with the goal of articulating clear purpose and refining the framework.
 
 
  • A corporate client on the complete restructuring of the compliance and corporate governance organisation, including value basis, policies and procedures, full scope risk assessment.
  • The Centre for Sports and Human Rights on the development of a governance framework and associated policies.
  • A financial institution in relation to appropriate methods of assessing and appraising board-level executives in line with corporate governance frameworks and remuneration codes.
 
 
  • A global health company in relation to risk and culture – including exploring areas of risk to which its business is particularly exposed, given the sector and the geographies in which it operates, and conducting training on how to reflect an appropriate corporate culture in decision making that reflects the interests of numerous stakeholders.
  • Several listed companies and their boards on considerations regarding adopting an advisory “say on climate” shareholder vote at the AGM.