by Dina Medland
As we approach the end of a summer of discontent in the UK, business confidence is at its lowest in 2018, according to a survey by the Institute of Directors (IOD).
The risks of a no-deal Brexit range from the impact on the NHS and the entire pharmaceutical industry to implications for more than €100 bn of European bank debt issued under English law. A ‘no-deal’ impact paper on financial services is among those listed to be published on Thursday.
But with multiple challenges on the horizon, paying attention to good corporate governance has never been more urgent. These are the times when values and standards are most in danger of being undercut in haste and distraction. Ahead of the findings of the Kingman Review into the future of the UK’s accounting regulator, the Financial Reporting Council (FRC) – covered repeatedly on Governance Watch, most recently here – it is clear that the broader issue of accounting standards and audit needs fundamentally to be addressed for the credibility of company reports.
The Financial Times has been running a four-part series on the issue, with the third part published this week: Too close for comfort: the incestuous ties that bind auditors and watchdogs. While CEO pay in the UK remains under close scrutiny as a corporate governance issue, the FT reveals that the salary of the FRC’s CEO, Stephen Haddrill last year was £500,000 – making him “one of Britain’s best paid public officials.” Mr Haddrill has held the job for a decade of the FRC’s 28-year history.
The need to re-establish trust between business and society while ensuring that the gap between the wages of workers and those at the top does not widen is often cited as the reason to rein in CEO pay. Historically, trends in the United States have had a way of wafting over across the pond on the back of the argument that high pay levels are dictated by the need to compete in a global market.
So, it is worth noting a report by the Economic Policy Institute published last week showing that CEO compensation in the US surged in 2017 to 312 times that of the average worker and at levels not seen since just before the financial crisis.
New business challenges caused by the impact of rapid technological change on ways of working are upon us, and here to stay. Amid the reality and the hype about artificial intelligence and automation there is a clear truth – articulated by the Bank of England’s Chief Economist, Andy Haldane, last week.
He warned that the UK will need a skills revolution to avoid "large swathes" of people becoming "technologically unemployed" as artificial intelligence makes many jobs obsolete. Describing the possible disruption of what is known as the Fourth Industrial Revolution, he said it could be "on a much greater scale" than anything experienced during the first industrial revolution.
Mr Haldane told the BBC that he had seen a widespread "hollowing out" of the jobs market, rising inequality, social tension and many people struggling to make a living. It was important to learn the "lessons of history and ensure that people were given the training to take advantage of the new jobs that would become available, he said.
He also reinforced the message that jobs that focused on skills of human interaction, face-to-face conversation and negotiation are the ones likely to flourish in the future. This is a view that has been expressed for years – here in the New York Times in 2016 and again, and often, more recently.
But although it’s not new, is there any indication that UK businesses are paying any attention or doing anything about a need that will have an enormous impact on their relationship with their employees and in turn, on their very survival? Businesses have been vocal about skills shortages, which have made the media headlines for years and been highlighted both by political concerns about migration, and by the debate around Brexit. But this is a different kind of skills shortage, and one that can be anticipated.
What is clear is that it requires more conversation within businesses and in and around boardrooms, and better communication – because if empathy is going to be a critical skill for productivity, then senior management needs to get out and learn what customers think. Read Gillian Tett writing about Jamie Dimon’s ‘listening bus’ in the FT last week.
Challenges involving rapid technological change include those posed by social media and ‘fake news’, involving everyone from the person on the street to senior business folk and even the President of the United States. But, while the ramifications, and the attempts at damage control, continue around Elon Musk’s tweet about taking Tesla private, the SEC is investigating.
Earlier this week it was reported that investors betting against Tesla made $1.09 billion since that tweet, putting a whole new twist on how to use corporate governance to make money. Now it emerges that he is in the middle of a soap opera involving allegations of drugs. For anyone in boardrooms who still thinks that social media should not be taken seriously, it is a salutary reminder that this is being looked at by the SEC in the context of market manipulation.
It also raises an important question: if one person in a boardroom is active on social media, should there be oversight, with anything of a financial nature requiring prior approval. Better to consider, communicate and write it down for joint understanding, rather than rely on assumed codes of conduct, perhaps.
The last ‘challenge’ considered here today continues to be equality. As long as we are merely “disappointed” by progress made rather than outraged, it will not get better. Directors UK, the professional association of UK screen directors, has just published a report on gender equality. Short read: it’s getting worse, not better.
Recommendations include calling on Ofcom to make it mandatory for all UK broadcasters to report on diversity off-screen for freelancers as well as permanent staff, and to set in-front and behind-the-camera targets for broadcasters to use production crews whose gender, ethnic and disability makeup mirrors that of the UK population. It’s an old adage: what gets measured, gets done.