Lessons from 2020
The potential implications of a no-deal Brexit haunt UK business as the end of a year dominated by Covid-19 looms. At time of writing there is still no clarity on the detail. If there are lessons to be learnt, they are surely around the folly of backing oneself into a corner even as the surrounding world faces new and urgent challenges requiring innovation, fresh thinking and collaboration. Regardless of the UK’s future relationship with the European Union, businesses need to look to themselves to see if their corporate governance is fit for purpose.
One thing is painfully clear. At the end of 2020, the United Kingdom is full of anger that has been building since the referendum - anger that spans workers, consumers, and stakeholders. Growing inequality and economic hardship suffered as a result a virus that has ravaged the country are only likely to fuel such sentiment into a new year.
Devastation in the retail sector provides ample evidence of the costs of being slow with digital transformation and consumer engagement. Covid-19 is widely blamed for destroying a sector that has however long been showing signs of being badly disconnected with the fast-moving pace of technological change and consumer expectation.
Online shopping is not a lockdown discovery, and this writer was focusing on boardroom inertia on both digital transformation and cybersecurity in the UK in 2013 and for four years after that, when writing for Forbes Europe on leadership. As businesses chase those consumers who are spending, they are being given a reminder that the “consumer is king.” If the information isn’t available, if the website won’t load and then crashes, if the online ordering process feels like a struggle on top of the stress of daily economic survival, then the consumer will go somewhere else – or let something like an Amazon sort it out.
The values and tastes of a rising working generation global in its outlook are notable in the way they stand apart from a “traditional” image on our screens of work in the UK. A new professional look referred to recently by a retailer on BBC Radio 4 as ‘zoom casual’ is not only a by-product of online home working dictated by the pandemic: it has been building as a preference among a multitude of professionals everywhere. It is just that the rise of working from home and a flurry of media interest has put a spotlight on it.
So too, the focus on environmental, social and governance (ESG) concerns is not a sudden surge restricted to 2020, but a steadily climbing trend. Noise levels around these concerns have been amplified by the pandemic. Public health is an issue that spans all three letters of the ESG abbreviation, and it has served well in making an essential intuitive connection between matters of concern to the environment and society, to matters of governance.
UK regulation has been fast to extend its boundaries to meet new challenges amid rapid technological change and the realisation that data is power, which can be abused at the expense of the individual. The UK’s Competition and Markets Authority is one of the first regulators to articulate a plan for a legally binding code of conduct for large technology companies.
Regulators have also been moving in a steadily co-ordinated manner in requiring business to act on climate change. “Climate change, and society’s response to it, present risks relevant to the Bank’s objectives” says the website of the Bank of England. The Financial Reporting Council (FRC) recently called out UK companies for their lack of action on climate change risks. In recent years it has also been doing that around the need for gender diversity and more ethnic representation at the top of UK business. Linking all these initiatives is concern for the relationship between business and society.
But despite all the talk, when it comes to diversity and inclusion, progress in the UK takes place at a glacial pace. In February 2020 the Wall Street Journal headline read ‘Britain’s largest companies fail to boost diversity on boards, regulator finds.’ The sub-heading: ‘A majority of U.K. companies didn’t have goals for ethnic diversity in the boardroom in 2019.’ Fast forward to November 26, 2020 and the Financial Times: ‘Regulator calls out UK companies for ‘box ticking’ on diversity. Sub-heading: “Critical FRC review says too many have ‘formulaic’ approach to corporate governance.”
In claiming a leadership role in global regulation around mandatory climate disclosure by business, the UK government appears to be saying that when it absolutely matters, “comply or explain” is not enough. It remains to be seen whether diversity and inclusion falls into that category.
On gender diversity, there have been significant moves this year in Germany, where last month the coalition government said it planned to introduce a mandatory quota for the number of women working as senior management in the country’s listed companies.
“We are putting an end to women-free boardrooms in large companies. We are setting an example for a sustainable, modern society. We are exploiting all of our country’s potential so that the best in mixed teams can be more successful. Because nothing is done voluntarily and we need guidelines to move forward” said Frazsiska Giffey, Germany’s Federal Minister for Women.
A historic step beyond gender diversity alone was taken in the United States this month when Nasdaq asked the Securities and Exchange Commission (SEC) to approve a proposal to require companies to demonstrate boardroom diversity and representation in order to list on the exchange, with regular disclosure. Institutional investors are also keeping up the pressure on diversity and inclusion. Any business that is bedevilled with groupthink among a homogenous group of individuals is in peril of setting strategic direction in an echo chamber.
No wonder then, that the UK keeps attempting to foster real change in business and its attitude to corporate governance at a time when getting the strategic direction right is key to economic progress. Adaptability is proving to be the critical factor for survival this year, and that requires cognitive diversity in decision making.
UK business has a lot on its mind as 2020 comes to a close, but the critical areas demanding attention are not separate concerns to be ranked as ‘pay attention to’ or ‘dismiss’ – they are interlinked. Initiatives to foster a truly diverse workforce that can progress equally on merit would help to dissipate any tendency for the boardroom to be the corner into which a collective mind-set has backed, with nowhere else to go.
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