Governance Watch - Issue 51

Corporate stewardship 

In 2019, UK business needs to be particularly watchful. The Corporate Governance Code has been revised and  the UK Stewardship Code is in consultation with its creator, the Financial Reporting Council (FRC), the regulator currently with an uncertain remit

The concept of ‘stewardship’, broadly defined as the “job of supervising or taking care of something, such as an organisation or property,” is on many lips and well mouthed in pursuit of a more responsible capitalism. Sustainability is increasingly being embraced by business as part of its ambassadorial attire on best practice and ‘sustainable business’ is the goal being set for the Fourth Industrial Revolution. 

Stewardship, which has extensive global acceptance since other countries have emulated the 2010 UK initiative, is a very collegiate concept. That may be its fatal flaw to date, looking at where we are now. Because as a concept, stewardship was so ‘collegiate’ in attracting institutional investors who recognised themselves reflected in its fairly amorphous image, that it was initially widely embraced. 

Now it turns out that it might take a lot more scrutiny and spotlight to get the same investors to step up on looking at risk in a holistic manner and behave responsibly in the task of managing other people’s money. (For more on that, see my next post on Board Talk.)

Publicly listed businesses are no different from investors in the need for them to step up to new levels of responsibility for their employees and their progression at a time of fundamental changes to the nature of work. You could call it ‘corporate stewardship,’ part of better corporate governance.

In the UK, despite a shocking lack of trust among the general public in its institutions as documented by the 2019 Trust Barometer for the UK , business is still looked to above government for leadership. 

It is business strategy which dictates the treatment and progression of employees, their training and skills, their work/life balance and more. It seems UK workers trust employers to look after them, allowing for the potential power of harnessing real engagement. All skills and training will need reviving regularly in a world of technological transformation, and having both reliable and comprehensive data on the makeup of any workforce and an established plan of two-way communication around progression is critical for success with diversity. 

As we switch our attention to robotics, automation and the promise of artificial intelligence, the human relations, or H-R function, has never been more important in defining the nature of the workforce while forging the business blueprint for a productive and sustainable future.

Why is your H-R director not sitting in your boardroom? If they are, do you see them through an old lens or a new one in terms of potential? That’s a question many businesses should be asking at the top levels, particularly when bemoaning a ‘lack of available women’ for the C-suite. The legacy of history suggests that there are a lot of women in the H-R function. That does not, by definition, devalue the function –it should in 2019 elevate the soft skills widely hailed today as ones that need to be taken seriously, and valued. 

It could be that H-R needs to be completely redefined along the lines of what the strategic goals for the business are for the next five to 10 years. Does it align with the IT function in connecting payroll on a grid system mapping the entire business? Does it measure gender equality and progression by ethnicity, through pay and company status over a fluid period of time rather than a snapshot capturing only those at the top? 

Anyone with an interest in UK corporate governance will have noticed that levels of executive remuneration remain high on the list of stakeholder concerns. Stratospheric pay awards merely reinforce an acute sense of inequality in a country that remains bitterly divided following the EU referendum over two years ago.

It is a little ironic that a budget airline with the general population as its customer base has been in the business media headlines recently for reasons other than the legacy of its CEO, Michael O’Leary, making loud statements via his PR team. In early 2019, there was this ranking by a consumer watchdog on RyanAir – finding it the ‘worst airline’ for a sixth year in a row, judged by consumers. Now we hear of an incentive plan that could yield him €99 million.

A recent report from the CIPD and the think-tank the High Pay Centre calls for the reform of the remuneration committee with executive pay aligned more closely to the wider workforce. It also asks for executive pay to reflect both financial and non-financial performance, such as investment in employee wellbeing and training. 

“Regulation alone will not bring about the changes in business practices and corporate culture that are so badly needed. And since pay distribution and corporate culture both influence each other, we can’t solve one without looking at the other” says the introduction to the report on RemCo reform. 

That’s the thing about executive pay-  it is not just about the amount of cash you get to keep in your pocket. It’s increasingly seen as being about corporate culture, and attitude, and fundamentally even about respect for your workforce. Outsized pay packets are like loudly jangling the coins in your suit pocket to make a point. It’s something powerful (generally male) executives used to do…. but probably would think twice about doing today. RemCo reform is a critical way forward to change the heart of a business.

Looking at these arguments against the reality of many women in business with a background in H-R makes achieving better gender diversity in the UK’s boardrooms start to seem more like a natural evolution. Don’t forget also the chartered secretary role, to which I hear more and more women are being attracted by their interest in playing a role in the world of corporate governance. As corporate stewards, businesses should nurture their talent in the interests of cognitive diversity. 

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