Today, the Government released its green paper on corporate governance reform. I have blogged about this a few times in eager anticipation of publication.
A nice surprise was how the entire green paper is phrased as open questions – a welcome approach from government to have a genuine debate. The paper explores some serious issues that do need tackling – and therefore benefit from proper discussion before government finalises its proposals. The green paper also allows scope to discuss how best to achieve the aims. There is a strong case for focusing more on corporate culture – changing behaviours and values can make a far bigger difference than regulatory compliance.
As trailed in advance, the green paper seeks views on three areas:
• First, on shareholder influence on executive pay;
• Second, on whether there are measures that could increase the connection between boards of directors and other groups with an interest in corporate performance such as employees and small suppliers; and
• Third, whether some of the features of corporate governance for listed companies should be extended to the largest privately-held companies.
This Green Paper is timely. It comes at a time of low levels of trust in big business, and rising concerns about the disconnect between business and wider society. Measures to increase transparency and reporting are welcome.
In our 15th Annual FTSE 350 Corporate Governance Review, we have seen evidence of increasing compliance with all aspects of the UK's Corporate Governance Code. But we also see that the FTSE 350 is some way short of fully embracing the principles; many choose to hide behind the pure letter of compliance and provide only basic, generic or ‘boilerplate’ disclosures in their annual reporting. With Theresa May setting clear expectations in this area, now is the time for companies to show a little more leadership and recognise that society deserves to be treated with a more respect; sharing more insights into their business and being more transparent on their impact on all stakeholders not just their investor base.
My one disappointment with the green paper is that it doesn’t really make the business case for reform: what’s in it for business and how does good governance and stakeholder empowerment raise business performance? The Green Paper implies that the proposals are a response to bad behaviour by a few ‘rotten apples’; it misses a trick to show how all businesses can benefit from strengthening trust and connectivity with stakeholders.
As a contribution to the debate, Grant Thornton has been working with the Social Market Foundation on research to assess the importance of trust in business and how bsuienss can build trust. As part of this we jointly commissioned a new survey of UK workers which shows that only one third (36%) of Britons agree that the company they work for provides opportunities for them to be involved in the running of the company. It shows that a sense of engagement at the workplace is something that over 80% really value as part of their job satisfaction – so businesses that get this right and find ways of creating shared responsibility at work can benefit from higher productivity and staff retention.
You can see more details from this research here: www.smf.co.uk
Theresa May is right to focus on strengthening trust in business and organisations empowering their people is key to this. Business needs to move away from the command and control way of operating and enable their people to have their say and take responsibility in how their business operates.