Publications & Thought Leadership

April 2023

Purpose and Stakeholder Governance Best Practices: Literature Review and Guidance on the Board’s Role in Purpose and Stakeholder Oversight

Posted in Sustainable Boards

Expectations are growing that businesses serve society by adopting a social purpose and developing strategies to enhance stakeholder – beyond shareholder – value creation. However, there is a dearth of guidance on the role of corporate boards in governing this transition from profit purpose to social purpose and from shareholder value creation to stakeholder (including shareholder) value creation.

“Purpose and Stakeholder Governance Best Practices” addresses this governance gap by summarizing recent (2018 – early 2023) literature on the topic and from it, discerning a governance playbook for boards. The research question that guided “Purpose and Stakeholder Governance Best Practices” is: “What is the role of the board in providing oversight of the company’s purpose and stakeholder relationships?” “Purpose and Stakeholder Governance Best Practices” is written for governance professionals including boards and corporate directors seeking to have best practices in both purpose and stakeholder governance.

The literature shows that governance professionals, academics, investors, professional services firms and governance and standards institutions agree the board has an important role to play in endorsing and overseeing the company’s purpose, values, and strategy, and satisfying itself that these and the company’s culture are aligned.

These are the four main practice areas for effective Board Purpose Governance as described in “Purpose and Stakeholder Governance Best Practices”.

Board Purpose Governance Practices

  1. Strategy and Culture
  2. Performance Management
  3. Monitoring and Reporting
  4. Governance Protocols

As with purpose governance, there is agreement the board has an important role to play in providing oversight of a company’s stakeholder relations. These are the six main practice areas for Board Stakeholder Governance as described in “Purpose and Stakeholder Governance Best Practices”:

Board Stakeholder Governance Practices

  1. Purpose and Strategy
  2. Stakeholder Engagement
  3. Culture and Decisions
  4. Governance Protocols
  5. Monitoring and Reporting
  6. Board Education

These governance practices are summarized in two sets of questions directors and boards can ask themselves and management to determine the current state of purpose and stakeholder governance, and flag and address shortcomings. Governance professionals can use them to create a purpose and stakeholder governance roadmap.

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