The benefits of stakeholder audits  

Businesses are increasingly under pressure to be run responsibly and sustainably, and the only way to know if this is really happening is to ask the people involved, be they employees, customers, suppliers, community members, partners or shareholders. By listening to these stakeholders in a structured way, a business can gain a real insight into the strengths and weaknesses of the organisation.  

GoodCorporation generally uses the term ‘assessment’ rather than ‘audit’ because audits can have a negative connotation in many businesses, often associated with a nit-picky review of process rather than adding value to the business. However, the word ‘audit’ comes from the Latin ‘to listen’ and so it is equally valid to talk about stakeholder audits. 

Leadership teams can use this listening device to obtain the sort of feedback that helps establish which practices and policies, systems and processes are really working. This type of management information should be the basis behind any good and effective business plan. If a company wants a true SWOT analysis of its business, it should consider starting with a stakeholder audit.  

How to choose the right stakeholders? 

In many B2C businesses, customer insight is already well established. However, the nature of questions often focuses exclusively on the product offering and value-for-money. A wider set of questions addressing perceptions and concerns in relation to sustainability can also help improve the feedback and make it more valuable.  

In B2B businesses, it is common to run some type of client survey to obtain feedback. However, it is striking amongst GoodCorporation’s clients that this is not always the case and also striking that questions are often quite narrowly focused on the product or service offered. Again, such audits should be used as an opportunity to ask questions about wider sustainability and governance issues – this feedback will be valuable. 

Employee questionnaires are standard in most larger businesses. These are often used in a bigger group to take the temperature and work out which business units are doing well, and which are struggling. Ideally the ethics and compliance team should be part of this process to ensure employees are asked how well ethics and compliance controls are working. Taking this approach enables compliance teams to identify and address any gaps in their programmes. 

Supplier feedback is not often sought by businesses. In our experience, however,  they can be particularly helpful in providing feedback on how well procurement controls work in practice or spotting wider compliance concerns. With businesses under increasing pressure to understand the practices and procedures in place in the supply chain, this type of audit is likely to become essential if good practice is to be cascaded down the supply-chain.  

As the CSRD and CS3D legislation develops, we can already see much more engagement with first tier suppliers as companies seek data for reporting and also as they look to evidence that strong ESG obligations are being pushed down the supply-chain. 

Community feedback tends to be restricted to industrial, extractive and agriculture sectors where there are obvious potential impacts on the community. Good organisations in these areas will set up community liaison programmes and ensure that they are using these programmes to identify any community concerns in order to respond as quickly as possible. Our experience is that businesses, even in these exposed areas, are often not systematic about obtaining community feedback. Given the CS3D’s focus on human rights and severe environmental impacts from own operations, it is clear that this type of community audit will become more common. 

Managing stakeholder collaboration 

Clearly each type of type of stakeholder is distinct and the design and management of any audit process must be adapted to these different groups. 

GoodCorporation has developed an ESG/business ethics assessment that helps an organisation look at all aspects of responsible business behaviour in a rapid, typically two-week, assessment. As part of this process, we often conduct over 100 interviews, covering all key stakeholder groups. To ensure this process is genuinely representative, we select the employees, contractors, customers, suppliers and communities to be interviewed. This approach helps prevent the audit from focusing on known areas of good practice or known challenges to deliver real insights into what is and is not working that are valuable to the business. 

Seeking the views of stakeholders has many direct benefits. For those that work in the organisation, it can reinforce engagement and provide motivation, helping with staff retention. For customers, suppliers and shareholders, it is an indication that the management team has a genuine interest in their feedback about the organisation. And for local community groups it can build trust, demonstrating a commitment to taking their views into consideration and managing the business impacts in the area. 

However, ensuring these positive outcomes requires careful communication. Make sure the purpose of the audit is clear from the outset, and properly understood by all involved. For staff interviews in particular, participants should feel able to speak freely, without fear of any repercussions for views that might be expressed. 

Confidentiality is a must for any audit, applying to external as well as internal stakeholders. Not only does this build trust, it will also result in more accurate information being obtained.  

The only exception for GoodCorporation would be interviews with joint-venture partners and government bodies. These stakeholders have such a specific view, that it is impossible to anonymise the feedback. Instead GoodCorporation makes it clear to the interviewee that it is an ‘on-the-record’ discussion, taking a note of the meeting and reporting the findings directly back to our client. 

In an ideal world, stakeholder audits should be conducted at least every two years, as they provide senior management with a thorough understanding of the business and how it works.  

How to define successful stakeholder engagement? 

Really successful stakeholder engagement will tell an organisation something they may not already know or may not be sufficiently known high enough up the organisation, for it to be acted upon. 

If the business is prepared to hear negative feedback, then it is more likely to be effective, which makes creating an audit environment where stakeholders can relax, give honest feedback and know they will be taken seriously vital.  

Inevitably, an audit will only be really effective if the findings are acted upon. This helps avoid any possible trust deficits and builds confidence in the process for future audits. As such, both the feedback and any resulting changes or new initiatives should be communicated to the relevant stakeholder groups. This demonstrates that the company is taking the audit process seriously and genuinely values the information it receives as a result. 

This also shows how stakeholder audits can strengthen the business, raising standards and improving outcomes for all parties. 

Is there a benefit in using an external auditor?  

If a business wants a genuinely objective view of what is going on, then an external audit can help achieve this. Employees in particular are more likely to be honest, rather than say what they think they ought to say, if speaking to someone not connected to the company. It is that honest feedback that will provide senior management with the accurate information they need to address any issues and drive improvements. 

Another advantage of using an external organisation, particularly one with considerable experience, is the opportunity to be benchmarked against a wide range of other organisations. Again, this should be essential management information, crucial to any business planning. Not only does this give a company the chance to assess its management practices, it also enables the business to track improvement by carrying out subsequent assessments.  

Is legislation placing a greater emphasis on management practices and controls?  

The last 15 years have seen an influx of legislation making companies increasingly accountable for the impact of their activities and the actions of others working on their behalf. From the UK Bribery Act, holding companies liable for the actions of third parties and intermediaries working on their behalf, to the Corporate Sustainability Due Diligence Directive (CSDDD) requiring in-scope companies to carry out risk-based human rights and environmental due diligence across their operations.  

The impact of this, combined with the greater scrutiny of businesses and the way they operate, has made it increasingly important for companies not only to develop clear codes of conduct but also ensure they are working well across their operations. The CSDDD in particular mandates stakeholder engagement as part of the human rights and environmental due diligence it requires. 

How should boards view stakeholder audits?  

A good board should be thoroughly engaged with such a process. They should be looking at this information not just to ensure that their company is complying with all relevant regulation and legislation, but to see what changes may need to be implemented. As boards are increasingly made up of non-executive directors, this type of feedback should be as essential as the profit and loss data from the annual report. With the increase in emphasis on good governance, board members need to ensure that they really know what is going in in the companies they direct. A comprehensive audit of management practices can help them do this.  

GoodCorporation has been conducting stakeholder audits to help companies manage and improve their ethics and compliance programmes for over 20 years. 

Our business ethics assessments can be used to help companies evaluate the effectiveness of their code of conduct, identifying how well it is working across all areas of operation. However, we are increasingly using stakeholder audits to evaluate the effectiveness of the systems and processes in place to manage those business risks covered by more stringent legislation, most notably in relation to corruption and human rights. 

Any good organisation will keep these practices and procedures under review, including stakeholder audits in this process helps ensure that management practices and controls are robust, underpinning corporate sustainability, driving improvement and protecting reputation.