Stakeholder Auditing – The Emerging Measure of Business Performance

The directors of companies and government agencies should no longer rely on financial audits and management assurances alone in assessing the performance of the organisation for which they are ultimately responsible.

In addition to traditional auditing functions, directors across the globe are now insisting their organisation’s marketplace performance be critically assessed through an independent stakeholder audit to determine how well the business is living-up to its service and operational standards.

In the future, expect to see Annual Reports of companies and government agencies progressively include the key elements of both financial and stakeholder auditing as critical measures of corporate performance.

Known as integrated reporting, this new approach recognises that financial performance alone is not enough in judging the success of a business in a competitive environment. It is just as important to understand how the business is viewed by its stakeholders – those who are critical to its continued success. They include customers, suppliers, employees, regulators, policy makers and shareholders. In other words, the people who can potentially “make or break” a business.

While there are a growing number of Boards of Directors who accept it’s a good idea to understand how the business is viewed by its external audience, they are at a loss to know how to make that assessment meaningful. Many rely on opinion polling. And while polling may provide some answers, it is inevitably weakened by the limitations of its question and answer format.

In the past two years, there have been models developed in Australia for conducting independent stakeholder audits based on “face-to-face” interviews with individual stakeholders by a skilled interviewer. Stakeholders are invited to be fearless and frank in responding to both general and specific issues, ranging from service standards and responsiveness to general strengths and weaknesses.

This approach inevitably reveals common insights – both positive and negative – that can be used as part of a continual improvement program. It will also expose any critical weaknesses that may exist as well as highlight particular strengths. The result is a recipe for better performance.

There is an added benefit that should not be underestimated. Stakeholders see the process as a genuine effort to directly involve them in trying to improve the business. That creates goodwill which nurtures loyalty.

While a recent stakeholder audit conducted for a medium sized, private company in Tasmania showed a high level of support for the enterprise, it also revealed important opportunities to expand and diversify the company’s services which had not been previously apparent to management. It prompted immediate action.

Similarly, while an audit for a key government agency showed vast improvement in its relationship with stakeholders in the past year or so, it identified very specific areas where improvement was still required.

Linked to this independent testing is the concept of stakeholder mapping, which involves a methodology for prioritising stakeholder groups in terms of their relative importance to a business. In most cases, customers, suppliers and employees will be high priority, although in other cases, regulators and policy developers may be the primary concern.

So for directors, the stakeholder audit is an increasingly important measure of business performance as well as a vital guide to even better performance. It is also a safeguard – almost as important as the traditional financial audit.