Governance Watch - Issue 55

The Accountability Horizon

One of the most important and complicated issues in the quest for better corporate governance is having a sense of where accountability sits on the horizon of the strategic business plan. Short-term thinking still plagues many a listed business, as Deutsche Bank appears to have demonstrated. The Financial Times reported earlier this week that it is to set up a €50bn ‘bad bank’ as part of an overhaul. But if you look back over the last six years or more at the governance, you might wonder at what has been discussed for years in its boardrooms.

“Along with a series of fines for misconduct scandals, the poor performance of its core business has driven down the bank’s share price to the lowest in its 149-year history” reports the FT. It was just over five years ago that I picked up on the paper’s close coverage of Deutsche Bank for a piece on Forbes, headlined “‘This Company Is Not a Gigantic Legal Department With A Bank Attached’: Litigation Costs.”

Institutional investors, legislators and regulators the world over keep returning to accountability as the key to better behaviour in boardrooms in the interests of all stakeholders. But there clearly remain a plethora of artful dodgers. 

In the UK, it can seem that financial penalties when they occur are levied so far down the line that the senior management involved has subsided from view on a cushion of golden executive pay rewards. Or, worse, that management is confident that its position at the top of British business has been honoured, and is therefore untouchable by sanction or long drawn-out investigative review. It’s a poor recipe for the pursuit of better corporate governance, and a disaster for the nurture of public trust. 

Equality/Gender Equality

It has taken some time to get there, but there is a clear recognition now on the need for accountability in the boardroom when it comes to treating people in the workplace fairly around principles of equality, regardless of gender. Perhaps surprisingly, it took the issue of the use of Non-Disclosure Agreements (NDA’s) by employers in the UK to fast-track the scrutiny by legislators. I have written about NDAs repeatedly on my independent blog, Board Talk. 

A report earlier this month by the Commons’ Women and Equalities Committee has warned that allegations of unlawful discrimination and sexual harassment at work are being routinely covered up by employers through secret NDAs. It has stepped further out, stating: “We are particularly troubled by the suggestion that ethnic minorities may be disproportionately disadvantaged by the online reporting of tribunal judgments.”

Notably, it has called on the Government to “strengthen corporate governance requirements to require employers to meet their responsibilities to protect those they employ from discrimination and harassment” and its recommendations include requiring “named senior managers at board level or similar to oversee anti-discrimination and harassment policies and procedures and the use of NDAs in discrimination and harassment cases.”

“Comply or explain” in corporate governance, around which the UK has built its code of behavioural norms for business, is just too amorphous as a catch-all on the ethical front. Such specific scrutiny and guidance seems essential to keep business on track with what is societally acceptable in the workplace, particularly at a time when it is faced with increased competitive pressure and the challenges of technological transformation and new business models. 

Small Businesses

Yesterday the UK government announced new measures to ensure that small businesses are treated more fairly when it comes to payment in the supply chain. Company boards will now be held accountable for payment practices to small businesses within their companies in a drive to increase transparency and accountability on late payments. Measures will force Audit Committees to report payment practices in company annual reports, the Department for Business, Energy and Industrial Strategy (BEIS) said

The government will consult on strengthening the powers of the Small Business Commissioner to hold to account the minority of larger businesses who fail to make payments on time. New powers “could include compelling information and disclosure of payment terms and practices, imposing financial penalties or binding payment plans on large businesses found to have unfair payment practices.”

Responsibility of the voluntary code of best practice – the Prompt Payment Code –is to be moved to the Small Business Commissioner. The required reporting of payment practices is also, like all required reporting – intended to ensure compliance. 

Diversity & Inclusion

Among all the initiatives taken for better corporate governance through accountability, true diversity and inclusion in business is still seen as best achieved by a proselytizing approach. We have spent over a decade in the UK discussing – and patting each other on the back for discussing – the “business case” for diversity in all its senses – cognitive, gender, race, ethnicity, sexuality, social background, age.

It is clear that the regulator, the Financial Conduct Authority (FCA) is moving towards a much stronger stance on the need for diversity as essential for better business. Andrew Bailey, FCA CEO made a speech in February this year in which he said: “Diversity and inclusion help to mitigate the risk of groupthink, and I believe they provide an opportunity for competitive advantage to organisations by helping them to make better decisions and to think in the long-term.” I also attended a public event at which the panel had two FCA directors speaking out openly on their attitude to a lack of diversity in a business, and commented on Twitter at the time on how striking – and outspoken – the comments were. 

At the end of the day, it’s about perspective and fresh thinking for innovation. If boardrooms cannot accommodate newcomers due to structure or regulation, there are other ways – including ‘shadow boards’ to incorporate them. More urgently in business at all levels, what is needed is better visibility for a broader range of talent and a change of mind-set at the top. 

When I was asked by the real estate sector to do an ‘in conversation’ event with Amanda Clack of CBRE UK recently around the publication of her new book on diversity and inclusion, I was surprised, as they were nowhere on my radar around better governance and sustainable businesses. Or so I thought – to read more on that, see Board Talk

CBRE UK ‘in conversation’ event

CBRE UK ‘in conversation’ event

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