Sustainable Business, 2020
Every new year is a fresh start. And every fresh start is a golden opportunity for change. 2020 heralds many changes for the United Kingdom, including the finality of the process of leaving the European Union at the end of this month after a general election delivered a strong mandate for Prime Minister Boris Johnson. But the issues that the UK – and the rest of the world – face around a climate emergency are inclusive for all, and so are the challenges facing large publicly listed businesses, wherever they happen to be. It’s a fast-changing world around technology and innovation, consumer empowerment, social identification and aspiration, and a younger generation claiming its future place based on its own values.
Will large, sometimes unwieldy, organisations react quickly enough to the change taking place around them?
Boardrooms hold a key to the door that answers that question. The answer, it is already clear in 2020, lies in thinking ‘stakeholder’ not ‘shareholder’ alone. Even those who abhor the term ‘stakeholder capitalism’ must realise that it is powerful because it is a refinement of what many see as a contradiction– capitalism working well for all concerned, not merely “an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.”
The accelerator for the way in which the thinking is going is, of course, the climate emergency. No matter how many denials there have been around the prospect of climate change, the current world adult population – and importantly its children – have seen Australia and its wildlife and environment burn every day now for weeks. There will be many repercussions to those images emblazoned on minds and these same minds are the consumers, and the human capital, that makes businesses thrive.
You could say that the steady rise of Environmental, Social and Governance (ESG) concerns has just become real for the boardroom, rather than a box you can tick as compliance in an annual report. It now needs to be a proactive position, not a defensive one that might be based on a minimal understanding. For more about stakeholder engagement with a focus on the retail sector see my post earlier this week on my independent blog Board Talk.
Sustainability
A regular feature of the corporate governance calendar is what the Financial Times calls the “annual finger-wagging letter” from Larry Fink, CEO of BlackRock, the world’s biggest fund manager. And yet, for all the truth in that description, any statement by the powerful BlackRock CEO is an important marker for investors. BlackRock has suffered an ignominy of public protests at its seeming hypocrisy around climate change, and clients have piled on the pressure. It is listening to its shareholders and also future stakeholders because on climate change we are all shareholders.
Millennial investors have been consistent in their views over the last decade, but now the investment houses who realise they will rely on their business are listening. Sustainability and profitability are beginning to share a space, real-time.
While the practical implementation of pledges to exit investments presenting a high sustainability-related risk (such as thermal coal producers) might lead some to question BlackRock’s purpose, to its peers this remains a very strong signal of intent and a defining direction in its leadership role.
There is now no shortage of large firms, especially in the financial services sector wanting to step up to the ‘sustainability leadership’ ranking. But the issue of gender diversity – or the lack of it, and the stalled progression of women in the executive and non-executive pipeline on leadership and power has been around for a lot longer, and the two are inextricably linked.
Gender Diversity/ Company Culture
It’s beyond time to acknowledge that gender diversity could be so much simpler than it is made out to be – it’s simply not true that the appointment of women to senior executive and non-executive positions in British business is a ‘supply’ problem. After all the ‘carrot and stick’ approaches by the UK government and regulators to ensure the career progression of women there remain immutable barriers, and those barriers are rooted in company culture.
The Financial Reporting Council (FRC)’s report earlier this month reviewing the UK corporate governance code makes it clear that many companies are grappling with defining purpose, with “insufficient consideration of the importance of culture and strategy, or the views of stakeholders.”
There is limited reporting on diversity, it says. “Concentrating on achieving box-ticking compliance, at the expense of effective governance and reporting, is paying lip service to the Code” says Sir Jon Thompson, the FRC’s Chief Executive, “and it does a disservice to the interests of shareholders and wider stakeholders, including the public.”
Having reviewed reporting against the 2016 Code and assessed FTSE 100 ‘early adopters’ of the revised 2018 Code – against which all Premium listed companies will report this year – the regulator finds that many companies are failing to implement a “clear purpose” or effective corporate culture, instead substituting “slogans or marketing lines”.
This is no way for the UK’s biggest and most visible companies to face the challenges of the next decade. As Helen Pitcher (chairman of this consultancy and sponsor of this blog) writes: “My own experience is that climate change is becoming a key discussion point in boardrooms… this changing perspective to a broader stakeholder consideration in turn directly shifts the nature of the Board’s debate to a much more diverse and emotional engagement.”
As her piece explains, that’s where gender diversity becomes ever more important, particularly in a Chairman role “focused on the behavioural spectrum, with flexible behavioural and personal styles, strong emotional intelligence and curiosity, with a level of engagement and humility which can facilitate the Board.” And, as she also states, the current numbers of women in the role of Chair in the FTSE 350 is “frankly embarrassing.”
Generalisations about gender are always open to easy dismissal. But when gender norms and expectation have become so rooted in a social system that they are default, any change to the status quo suddenly requires copious justification. Male leadership is considered the norm in many of the UK’s businesses and the elevation of women the anomaly. All the persuasion in codes of corporate governance and the raising of national standards needs to be matched now by a reality of visible progress.
With many FTSE Chairmen coming to the end (or beyond) the recommended tenure in the position and at a time when there is greater recognition of the importance of fresh thinking at the top of our businesses I am delighted to be able to report the launch of a new initiative today, with its first meeting of minds.
A steering group led by Helen is bringing together men and women in and around the boardrooms across FTSE 350 and AIM-listed companies committed to accelerating the number of women in the critical role of Chair. The aim is to establish a new ‘best practice’ for nomination committees aiming for diverse shortlists to include both race and gender, with agreed actions and pledges. Watch this space.
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