by Dina Medland in London
Raising That Bar: Corporate Governance
Britain is ending a turbulent and frustrating year around its referendum decision to exit the European Union on a good note when it comes to corporate governance, in which it leads the world.
The Wates Principles for large private companies, a voluntary code created with the collaboration of a coalition of industry interests headed by the Financial Reporting Council (FRC) and chaired by James Wates, CBE, were launched this week. They are an important milestone in the recognition of a fast-changing world with new business models that call for the urgent re-assessment of the value of human capital in the contribution business makes to society.
Coming two and a half years after the story of retailer BHS imploding hit the world’s headlines, the Wates Principles have been drawn up as yet another measure to help restore trust in business by stating clearly that the UK believes that all business over a certain size is accountable – not just the listed ones.
A decade after the financial crisis, we are still struggling with widespread disillusionment in society about business and its ‘fat cats’ and inequality that appears to have become endemic, with business blamed as a root cause for that trend.
“I believe that good business, well done, is a force for good in society. The Wates Corporate Governance Principles are a tool for large private companies that helps them look themselves in the mirror, to see where they’ve done well, and where they can raise their corporate governance standards to a higher level. Good corporate governance is not about box-ticking It can only be achieved if companies think seriously about why they exist and how they deliver on their purpose then explain – in their own words – how they go about implementing the principles. That’s the sort of transparency that can build the trust of stakeholders and the general public” said Mr Wates.
The Principles are voluntary – and to cynics everywhere, their arrival is no cause for celebration. But they are part of wider changes made to the UK’s corporate governance framework and companies will need to report on their application. They are yet another weapon in Britain’s corporate governance arsenal, which has long been fuelled by the belief that setting acceptable standards for business is about continually ‘raising the bar’ for corporate behaviour by subjecting it to scrutiny, and accountability.
Technological transformation, consumer empowerment and the rapid decline of old business models (think about the retail sector) have raised and will continue to raise fundamental ethical choices when it comes to creating businesses on the back of developments such as the ‘gig economy.’ Coming at this critical time, the Wates Principles place a much-needed emphasis on the consideration of workers and stakeholders in the workings of a business.
Ten years after the financial crisis, there is more, not less, for businesses and boardrooms to have on alert on their radar at any given time regarding strategy and corporate governance. The debate around climate change and climate risk has come to a crescendo, and is engaging institutional investors. Cybersecurity looms large as a concern from an operational standpoint, but also one of trust and reputation.
Amid all this, it is essential to remember that corporate governance, the essence of a business, is about people.
Governance Watch will be taking a break until 2019. Wishing everyone a safe and happy festive season, and a good start to the New Year.