216 Towards binding rules for stakeholder engagement.

The underlying consensus across all perspectives seems to be that stakeholder engagement is a crucial part of limiting board autonomy and that binding rules are merited both to protect stakeholders and to provide clarity for boards to demarcate their legal responsibilities. In my assessment, the common requirement across all perspectives is that stakeholder engagement should be oriented towards the shared aim of encouraging the durable success of the corporation. All perspectives seem to agree that the rights of stakeholders should be aligned with the duty of the board towards durable success. By considering that all stakeholder interests are integrated in the common interest of the corporation to achieve continued and resilient performance, stakeholder engagement becomes guided by a common standard rather than being oriented towards partial and partisan stakeholder interests. While allowing for disagreement with the board about the best way to achieve durable success, stakeholders acquire a shared responsibility to find workable pathways for the corporation towards a more resilient and sustainable trajectory.

At a minimum, I would argue that a legal duty for boards to establish a stakeholder policy and corresponding rights of engagement for stakeholders would be required to implement the underlying consensus of the perspectives.1 In general, such a stakeholder policy should include the identification of specific stakeholders and their interests on the basis of their involvement with the corporation. The range of such involvement includes strategic stakeholders, as well as those related with the corporation as team members, on grounds of public interest or due to the impact of the corporation on the resilience of larger ecosystems. Such a binding process for stakeholder identification allows stakeholders to make themselves and their interests known to the board. Meanwhile, it allows boards to demarcate the range of stakeholders involved and to know which interests should be considered in their decision-making. This approach would prevent the board from being faced with an open-ended responsibility for stakeholder engagement, as feared by the partnership perspective. Instead, boards are able to identify the explicit and specific stakeholder interests that should be considered in their decision-making. Additionally, the rights of engagement attributed to stakeholders can be linked to the requirement of being identified as part of this stakeholder policy. This would allow boards to know in advance which specific stakeholders might obtain and exercise rights of engagement in relation to the corporation. Based on general principles of democratic deliberation and rights to voice affected interests, I would argue that such engagement rights should at least involve the right to receive information about the way in which the board deals with specific stakeholder interests, the right to be heard about the impact of board decisions on their interests and the right to provide non-binding advice to the board in relation to their interests.2 Additionally, stakeholders should be able to challenge board decisions in extreme cases, particularly if the stakeholder policy of the board does not comply with these rules.3 A final requirement with regard to a binding stakeholder policy should be an annual account by the board regarding the way in which it has dealt with the identified stakeholder interests, for example by publishing a materiality assessment as used by the EU CSRD.4 The standards for such an annual account should be the shared aim of achieving durable success and the general principle of the weighing of interests in accordance with reasonableness and fairness, and the prevention of disproportionate harm to the environment (as recommended above).5

In relation to more extensive forms of stakeholder governance, I recommend a non-binding facilitatory approach in order to integrate the suggestions by the partnership and ecosystem perspectives. In my understanding, the partnership perspective emphasizes the agency of the corporation and its board to pursue its own strategy for value creation. A binding approach to stakeholder governance risks transforming the corporation into a political institution ruled by partisan and conflicting interests which might cripple corporate decision-making.6 Instead, a more facilitatory approach to the internal representation of stakeholders would allow the board to maintain its agency and prevent corporate governance from becoming controlled by partial interests. In turn, the ecosystem perspective emphasizes the decentralized nature of corporate governance, requiring a tailor-made approach towards including local stakeholders in localized centres of authority. A facilitatory approach to stakeholder governance would allow corporations to design a corporate governance framework that fits the various communities and ecosystems in which it operates. Meanwhile, the institutional perspective emphasizes the public constitution of the corporation licensed to operate by society and its stakeholders as long-term team members. This public constitution implies that corporate governance should be closely aligned with the interests of society and all corporate stakeholders. Such an alignment requires some form of representation of stakeholder interests in corporate governance.

Taking these considerations from all perspectives into account, I recommend two forms for such an internal representation of stakeholders. A first form involves the composition and responsibilities of the supervisory board, which I argue should be modified to explicitly include the extended range of the stakeholder interests involved. I shall return to this below.7 A second form would involve the legal establishment of an internal stakeholder council or the inclusion of stakeholders in the general meeting of shareholders.8 For example, stakeholders could be internally represented through a stakeholder council with specific governance rights similar to the works council. The duty to establish such a stakeholder council could be related to specific facts about the corporate enterprise, again similar to the works council. In my view, more debate and research is merited on the implications of such stakeholder councils for the functioning of corporate governance.9 The fear of the partnership perspective that corporate governance may become too political and hence reduce corporate agency is not unmerited.10 Meanwhile, I would suggest that designing a non-binding regime for corporations to voluntarily establish such stakeholder councils might be beneficial for the purpose of learning about new corporate practices that are capable of including stakeholder interests in corporate governance. All in all, I articulate the following recommendation in relation to stakeholder engagement: