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From Employees to the Board: A Guide to Managing Stakeholder Relations

The term corporate stakeholder was defined in 1963 as “groups without whose support the organization would cease to exist.” That gets right to the heart of why CEOs cannot afford to take their stakeholders for granted.

Given that a company’s existence depends on its stakeholders, CEOs and managers should intentionally cultivate those relationships.

Here, we offer practical guidance for effective stakeholder relations, specifically concerning sharing financial information.

While the list of groups that may legitimately be considered stakeholders can be pretty long, we limit this discussion to investors, board members (who may also be investors), lenders, employees, customers, and suppliers.

Stakeholder Relations: Investors

Large, publicly-held companies have investor relations departments, file quarterly financial statements, and issue earnings releases.

But CEOs of closely-held small to mid-sized businesses often do not know how often investors want to hear from them or what kind of information they should provide.

CEOs may be concerned that their investors, who are busy people, may not like to receive frequent communique. In our experience, this concern is mainly unwarranted – most investors say they do not have enough contact with a company. 

In the early start-up phase, companies typically communicate with their investors in some uniform pattern. Still, the quality of the information they are sharing is often lackluster or incomplete. Even the best well-intentioned companies can struggle with communicating and getting financial data to their investors. 

Providing incomplete or infrequent information can be a big mistake for organizations. At some point, the business may need to seek permission from investors to move forward with a sale or another fundraising round.

Furthermore, early-stage investors may introduce the CEO to other investors or contacts who could be helpful, financially or strategically (or both). So, it is essential to keep all classes of investors regularly informed – at least quarterly.

What type of information should be shared with investors?

An Investor Rights agreement often specifies the financial information a company must deliver, such as quarterly financials and a Management Discussion & Analysis. Businesses should also provide a consistent set of KPIs to investors, whether the numbers are good or bad. In other words, do not cherry-pick KPIs based on results for the most recent quarter. 

Conversely, the financial information provided to investors should be selected judiciously. The more you include, the greater the chance that details about your company can be misconstrued. Furthermore, if the business or business model changes, the market may judge outdated or irrelevant KPIs. 

Stakeholder Relations: The Board of Directors

Board members expect to see formal financial statements and an analysis of business performance versus its budget.

The board will expect financial KPIs like bookings, billings, sales growth, the average number of customers, and customer churn, often monthly and at least quarterly.

Expect board members to ask questions about the financial information; while it may seem like a burden, the board is there to help. If they do not ask questions, they may not have reviewed the package.  


Stakeholder Relations: Lenders

Be proactive with your banker. If you ask for a new loan or line of credit, make that clear and specific (for example, “we are seeking $X to be paid back over Y years to fund Z).

Provide updated financial forecasts that show that you can continue to service an existing loan or how a new loan will be repaid. Be ready to explain and defend the assumptions that drive the forecast.

If you think there is a risk you will breach one or more loan covenants, be proactive in communicating with your bank (or another lender) about the situation.

A lender is much more likely to be supportive when you have been forthcoming about the likelihood of a covenant breach than if you scramble to explain why it happened after the fact.

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Stakeholder Relations: Employees

Keeping employees informed about how the business is doing is part of keeping them engaged, which helps to minimize turnover. However, you do not have to disclose everything about the company’s financial condition.

For example, in providing information about sales, you can state that new sales rose or fell this quarter without giving exact numbers.

Give updates about KPIs that are tied to employees’ efforts, such as those related to productivity (“we produced X units with Y staffers this quarter,” or “we released N new enhancements to our software as promised to our client.”) 

Whatever you decide to share with employees, be consistent. People want to know they are part of a winning team – in other words, that the company is adding new customers and beating out its competitors. That makes a difference in employees’ willingness to accept stock options in lieu of higher salaries and sends signals about the value of the choices they already have. 


Stakeholder Relations: Suppliers

Suppliers often ask for financial statements when deciding whether to extend credit, which is understandable.

However, venture-backed companies that are not yet profitable prefer not to share that information precisely because of the concern that the supplier will choose not to extend credit.

One approach is to state, “we are privately held and venture-backed and do not share our financials with third parties,” as an opening salvo.

You might divulge how much capital you have raised and how many employees you have to indicate the company’s size and viability. 

As we noted in a previous article on managing through challenging economic times, if your business will have a problem paying a supplier on time, or if you plan to reduce the frequency and size of your orders, communicate that proactively and as early as possible. 


Stakeholder Relations: Customers

Potential customers and those whose contracts are up for renewal may be reluctant to sign on without some reassurance that your business will be around to deliver the service for which you are being paid.

As with suppliers, providing some financial information such as the number of employees or total funding will provide comfort that the company is sufficient to make good on its promises.

Final thoughts 

Company leaders can choose to look at stakeholder relations grudgingly or with gratitude – we recommend the latter.

Be grateful for investors who have put their capital into your hands, and embrace the opportunity to show them how things are going.

Be thankful for the input and guidance you receive from board members.

Be grateful for your employees' excellent work for the company and your suppliers and customers that help you grow your business. As the now almost 60-year-old definition of a stakeholder reminds us, your company would not exist without their support. 

G-Squared Partners can help you develop sets of financial information that are appropriate for each of your stakeholder groups. Contact us or book a meeting to get answers to your questions on this subject and discuss your company’s specific situation.

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