The
latest annual review of the UK Corporate Governance Code has been published by the
FRC and can be found at: https://www.frc.org.uk/getattachment/53799a2d-824e-4e15-9325-33eb6a30f063/Annual-Review-of-the-UK-Corporate-Governance-Code,-Jan-2020_Final.pdf
This
makes interesting reading in that the adoption of the code doesn’t come into
full effect until 2020 reporting. The report notes this, and also reflects that
the majority of companies “declared themselves fully compliant”. But is this
enough and does good governance sit at the core of everything they do?
Effective
application is clearly more than purely ticking boxes. It needs to be at the heart
of the company, with good business ethics underpinning the business and being
tangible, transparent and easily evaluated.
Whilst
researching recently published annual reports of listed companies, it became
clear which companies live and breathe good business ethics, which are using
them to push their own products and which are merely ticking the right boxes.
Some
listed companies have clearly adopted the code, or had already recognised the importance
and benefit of having an effective ethics and a robust governance structure at
the heart of their business. This becomes clear in their annual report through the
language used, the examples provided of business in practice and the openness
of their reporting, with or without glossy photo’s. These businesses recognise
that they have a responsibility not only to their shareholders but to all their
stakeholders, whether employees, shareholders, suppliers, the communities in
which they function or the wider environment. Whether their sector is going
through good or tough times, they recognise their part to play and openly report
their actions in delivering.
Alongside
these companies are a large proportion where the current reporting language
reflects their box ticking. They will meet the standards, they are implementing
a review, they are developing an internal code, etc, etc. The next stage of
reporting will showcase whether these companies have progressed from box
ticking to really recognising the benefits that can be delivered through having
full adoption.
Evidence
of box ticking are wide a varied such as:
- Majority
of focus on short-term financial results rather than long-term effective
sustainability and strategy;
- Lack
of obvious cultural inclusivity in the workplace, from the board downwards;
- Focus
purely on shareholder value in isolation of stakeholder value;
- Employee
engagement seen as a means to drive staff retention, resource allocation and
cost cutting rather than underpinning a successful business;
- Remuneration
policies that reward financial results in priority to ethical delivery.
There
is increasing pressure on all businesses to recognise their impact on climate
change and adopt new measures to offset their impact. Alongside this, it would
be good to see recognition of the opportunities to do more to positively impact
the broad range of stakeholders and the local community. Pro-active actions
rather than tinkering would have a greater impact whether through real staff
engagement, tangible delivery of actions and immediate change of attitude and ethos
would all be good starting points.
It
will be disappointing, but not surprising, if the majority of companies
continue to merely tick the box and fail to grab this opportunity to upgrade
their business into an engaged employer that recognises the positive impact that
they can have on their community, sector and environment.
To
date, too many companies are seeing this as just another reporting requirement
and don’t seem to grasp that this should underpin their business and will support
their success.
Independent
Directors and Trustees Limited appoints NEDs and independent directors to client
companies in the UK, as well as independent trustees to employee ownership
trusts. We also deliver governance advisory services and can work with you to
build a robust framework to support the growth of your business.
With
a core belief that good business ethics and governance should sit at the heart
of every business, no matter which sector they work in, what stage of growth
they are at or what their size, ID&T supports success through action.
We
are not a recruitment firm, instead we work alongside you and appoint directors
that support your aims and strategy.
