Governance Watch - Issue 24

by Dina Medland in London

Watch List

As the year comes to a close, the business media headlines offer clear warning of the need to keep a close eye on the human dimensions of better corporate governance in the challenging environment around Brexit.

2017 has been a rollercoaster of a year of uncertainty for UK business, with little respite in immediate sight. Will the pressures mean a decline in the high standards for which the country is world renown? The adage ‘people are at the heart of your business’ may need to be painted in large letters on many a boardroom wall.

Concern around supply chain issues – whether they be environmental, societal or governance related – have been steadily growing despite talk of ‘de-globalisation.’ What’s behind Tesla’s supply chain woes? asks a post on the website of the Chartered Institute of Procurement and Supply (CIPS). Brexit “will continue to create waves in procurement and the wider business community, around the world” says CIPS. Its October conference brought procurement professionals together, and its report ‘The Brexit storm: how procurement and supply chain professionals are tackling the issuesis here.

A second survey conducted by CIPS in September on the Brexit response from a supply chain perspective found that 40% of UK businesses who use EU suppliers were looking for British replacements. It also found that 63% of European businesses expected a bigger portion of their supply chains would be outside the UK.

From child labour to unacceptable working conditions to ‘facilitation payments’ often considered the norm in some corporate cultures, the supply chain is a potential minefield for UK business set on maintaining high standards even without the decision to end a 40-year relationship and leave the European Union. For the retail sector, whose woes will only become apparent after the Christmas and New Year sales figures are in, it is clear that looking for a competitive edge is getting harder and requires innovative thinking.

It is worth noting this headline: Marks and Spencer is first supermarket to publish data on antibiotics in the supply chain. Hard on its heels was Waitrose.

Business attention to its environmental policy has a clear human dimension in how it is seen by customers who are increasingly choosy on where they shop, not only by price, but also by judgement on values and reputation. This month the UK Government published a list of 260 employers who failed to pay 16,000 workers a combined total of £1.7m in back-pay – and this was The Independent’s headline: Sports Direct and Primark top list of companies named and shamed for paying below national minimum wage.

Bigger fines urged for employers who underpay staff reads yesterday’s headline in the Financial Times. It is based around an interview with Sir David Metcalf, the UK’s first director of labour market enforcement. The FT quotes him as saying: “I think in these troubled times, coming in saying ‘Oh, they need twice the resources they’ve got’, that’s just not the way to do it,” said Sir David. As a result, he argued, the penalties would need to be harsher: “That’s the point about the trade-off: If you . . . have not got the resources….. then you need heavier penalties.”

Under plans revealed by the UK’s corporate governance watchdog, the Financial Reporting Council (FRC), public companies will have to consider workforce pay when setting executive salaries. The FRC proposals were covered in my blog Board Talk and in the last Governance Watch.

Don’t expect the focus on CEO pay in the UK to ease, particularly as the average working person feels the economic squeeze of Brexit. Bosses at Britains FTSE 100 companies are paid 94 TIMES the salary of a typical employee, new figures reveal reads a Daily Mail headline this week.

When you think of employees, also think of pensions. They keep coming up again and again as an essential component of good corporate governance in any business. Toys R Us provides the latest fodder, bringing it all together in this headline in the Daily Telegraph:  MPs demand explanation on Toys R Us pay amid mounting fears over retailer’s future.

Against this backdrop lies the need for changing business models in an age of technological transformation. We have already had years of concern over cybersecurity, with a growing realisation that on one level, cybersecurity demands better employee engagement – your employee could be a major risk.

Now we move on to challenges of automation and artificial intelligence, and what they will mean for job losses, and those people ‘at the heart of a business.’ Workplace robots could increase inequality warns IPPR reads yesterday’s BBC News headline on a report just out from the Institute for Public Policy Research.

If all that isn’t enough to keep the inhabitants of boardrooms on their toes, here’s a story from yesterday’s Financial Times: Activist investor says Brexit offers rich pickings.

Thank you for reading and Happy New Year from Governance Watch

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