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.

Ethics in a pandemic

As we start looking to the end of 2020 and dare to imagine the possibility of life without Covid-19 thanks to the best efforts of global science on a vaccine, one thing is clear: the role of ethics in corporate governance and in forging resilient, sustainable businesses could not have been made more clearly.

Across industry sectors, businesses continue to struggle for economic survival, as do their employees. The importance of paying attention to ethics, to understanding and engaging with employees and their values particularly when physically distant with remote working has spawned an army of consultants willing to offer advice. If corporate governance is the essence of a business, then ethics must be the glue that holds it together and makes it productive. Ethical issues, and issues which are fundamentally about ethical choice whether or not they are branded as such need to keep rising on the agenda of corporate concern.

Governance and Opportunity

As the virus runs rampant around us, resilience is becoming a corporate buzzword. The extreme pain of many sectors- such as hospitality, travel and our creative industries reliant on physical human interaction – is only too clear. But the extremity of the pandemic, and its global reach also offers a critical window of opportunity for businesses and boardrooms to re-think their operations and in doing so, raise the bar on better corporate governance.

Whether you think we are seeing an environmental wave or a continuation of the steady march of publicity for environmental, social and governance (ESG) concerns in the wake of the pandemic, institutional investors are increasingly in this spotlight, calling for concrete action to combat climate change. Among other things, they are clearly well aware that over half the world's working population is now made up of millennials.

Stakeholder Governance, Stakeholder Capitalism

On the anniversary of the historic statement on the purpose of a corporation from the Business Round Table, a group of 181 CEOs in the United Sates there has been an update, and also a flurry of loud debate around stakeholder governance and stakeholder capitalism. The number of CEOs signing up to the statement has grown to 200 over the last year, expanding its reach potentially to embrace thousands more of working lives. Only now the world is also in the middle of an economically crippling pandemic.

Culture

The issue of toxic culture haunts UK corporate governance. When coping with a pandemic requiring an agile corporate response it can become dangerously hard to budge. As a country we may have elevated an interest in matters of corporate governance from the pursuit of ‘anoraks’ to that of ‘experts’ and ‘business strategists’ over the last decade, but mind-sets still shudder at change. This is apparent in news this week from two long-standing names in British business: Marks & Spencer (M&S) founded in 1884 and the Institute of Directors, the business lobby group formed in 1903.

Business, Ethics and Trust

The scale of the UK government's economic response to the coronavirus pandemic was termed "unprecedented" by the National Audit Office several months ago, in May. It is one of the highest economic support responses in the world in terms of percentage of GDP, with much of the spending going towards supporting businesses.

Pay and Accountability

We might have “turned the tide” in the fight against coronavirus, as UK Prime Minster Boris Johnson said at Tuesday’s media briefing, but the prevailing sentiment in the country from boardrooms to active working living rooms remains one of uncertainty. We do not know how long the pandemic will rule our lives or how extensive the economic damage left in its wake will be. But we can reaffirm what we deem acceptable standards of corporate behaviour, and a sharp critical focus of corporate governance must inevitably remain on pay.

Investors and Stewardship

Investor stewardship has become the guardian of good corporate governance in this pandemic. Will it remain that way as we find a way to live and work beyond Covid-19? Only time – and the behaviour of business - will tell. However, it is clear, as lockdown starts to ease with caution in part of the United Kingdom, that ESG – the acronym taking in the environmental, societal and governance considerations for any business – has been thrust to the forefront. We will have to wait and see how high it features in the consideration of corporate governance by businesses aiming to serve society better by their actions.

On Governance, Ethics, Data – And Collaboration

We think of corporate governance as the essence of a business, good for building better companies which inspire public trust and that is why we spend so much time focusing on getting the thinking on the principles of governance right.

Every business faces daily challenges today the likes of which we have not seen before, due to technological advances, global supply chains, rising concern on environmental and climate risk, changing consumer attitudes and more. But the coronavirus pandemic must be the biggest challenge faced by corporate governance in a very long time. It is also one that should bring minds back to focus on fundamental issues of ethics and what we value.

The rise and rise of Amazon as a near instant delivery business that has continued to operate with remarkable efficiency has been apparent in recent weeks. It said recently it was looking to hire another 100,000 workers in the US and announced a raise in pay in the US, UK and Europe as it tries to meet the surge in demand for online shopping.

Governance in A Pandemic

Less than five hours after the UK’s Chancellor of the Exchequer, Rishi Sunak, delivered what was being called an emergency coronavirus Budget yesterday, the World Health Organisation (WHO) declared coronavirus a pandemic. A global pandemic is declared when a new disease for which people do not have immunity spreads around the world. The UK government is convening a second meeting of Cobra, its emergency committee today, and it is expected to announce that it is stepping up its response to the coronavirus while other countries also take action.

Premium Listings

Staying competitive is in sharp focus for the United Kingdom in a post-Brexit world. The saga unfolding at NMC Health, a FTSE100 business, was well outlined in an opinion piece in the Financial Times earlier this week. Those who remember the outrage surrounding behaviour at Eurasian Natural Resources Corporation (ENRC) for example – and the negative publicity around the premium listing, will point to the tightening of the governance rules in response as decisive action taken.

This week, as NMC Health hits the deadlines on a daily basis and its share price gyrates with speculation, the premium listing standards are again in the spotlight. “UK regulators have already shown a recent willingness to water down standards to attract overseas business…. NMC Health’s issues are a timely reminder of just how badly things can go wrong” writes Brooke Masters in the FT. Anyone who cares about corporate governance will be watching closely.

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.

Ending 2019

As 2019 moves towards a close, there remain many questions as to where we are in the United Kingdom when it comes to redefining and living up to our standards of corporate governance, closely watched by the rest of the world. In the wake of a general election yielding a thumping Conservative majority, Prime Minister Boris Johnson has much to do in the weeks and months ahead.

 News of his victory and the ensuing market rally “added £33bn to UK shares” reported The Telegraph in its coverage right after the election. Sterling rallied as the markets caught a whiff of the end of years of uncertainty after the 2016 EU referendum vote. But, as news came that the UK government is to add a new clause to the Brexit bill to rule out any extension to the transition period beyond the end of next year, sterling fell. Uncertainty is not yet over, and there are long-term agreements yet to come around immigration, tariffs and more that affects everyday business decisions. There is also the need to stay attuned to corporate governance.

Gender Diversity: A Step-Change Is Needed

UK business is in danger of stalling on an uphill climb when it comes to the progression of women. Yes, there has been progress in the number of women to be found in boardrooms since targets were first set in 2011. It is progress achieved via investor pressure, closer scrutiny of the appointment process, a great deal of diversity evangelism and the use of public shaming via the media. It is also now painfully apparent that this was always a demand, and not a supply problem.

Now, according to the latest report on the state of play on gender progression from the government-backed Hampton-Alexander review, “a step change is needed for senior leadership roles below board level: 50% of all appointments next year need to go to women, or the 2020 target will not be met.”

Diversity Is Difference

“Ideas are not real estate” said Robert Rauschenberg, the American artist. I wish it held true in the business world. Because ideas are bought, sold and poached all the time, but they are still not shared enough together with experience and two-way learning and mentoring opportunities in collaboration towards a common goal. It might be a useful way of thinking about our approach in the UK in the drive for gender diversity and progression.

Diversity and Power

This week everyone in the United Kingdom was given an important lesson on the value of diversity in sorting out difficult issues.

As the Supreme Court, the highest court in the land, with its first-ever female President Brenda (Lady) Hale, delivered a unanimous verdict around the unlawful prorogation of Parliament, history was made. The motto on Baroness Hale's coat of arms is ‘Omnia Feminae Aequissimae’: Women are equal to everything. She has been outspoken on the need for diversity in the judiciary.

 The ruling was on two legal challenges – one was brought by the businesswoman and Brexit legal campaigner Gina Miller, born to parents of Indian descent in what is now Guyana. In 2017, she was named the UK’s most influential black person and was also number 26 on the Asian power list of most influential British Asians.  

Leadership

It can’t have been easy, running a business in the United Kingdom over the last three years and more, treading water in the swirling flood of uncertainty around the implementation of the vote to leave the European Union. We paused Governance Watch in August because we reasoned that everyone would be away, taking a break. But even those lucky enough to have done that via travel abroad will have had the reminder of turmoil constantly with them as they noted the value of sterling wobble and sink. There has been no break from the limbo in which business has been placed. With no clarity in sight at time of writing around the direction of our political leadership, it is more important than ever to listen to the murmurings in the socio-economic undercurrent of a divided country.

GDPR Bites

Investors might consider this to be a good time to invest in cyber security and cyber insurance, as it is clear that data breaches are about to become real and painful for business under the punitive powers of the EU’s General Data Protection Regulation. (GDPR). The Information Commissioner’s Office (ICO) has signalled its intent to use the new law in force from May 25, 2018 which takes the previous maximum fine of £500,000 under the Data Protection Act 1998 into a new realm altogether – a maximum of 4% of a company’s annual global revenue.  

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.

Inequality 

OECD figures suggest that the UK has among the highest levels of income inequality in the European Union (as measured by the Gini coefficient), although income inequality is lower than in the United States, says a research briefing from the UK Parliament in March 2019. This week the think-tank the Institute of Fiscal Studies (IFS) announced the IFS Deaton Review, a major five-year investigation into whether there is a systemic bias in the country towards inequality. It has enormous implications for our thinking on a wide range of things, from public policy to societal behaviour and to the design of corporate governance and attitude to corporate behaviour.

Limbo and Further Limbo

Endless Brexit uncertainty was always going to be bad for corporate governance in the United Kingdom. But on one level, it seems it can be big business. The Financial Times reports that asset managers have paid UK politicians an awful lot of money for speeches and advice over the past year, to help with investment decisions. 

Change and Evolution

Beware the Ides of March, as they can prove to be treacherous. At a time when Britain appears ever more deeply mired in political stasis over the Brexit vote, we have also seen a steady roll-out of government reforms to improve corporate governance and the running of our businesses. The aim is to restore trust in business and its place in society, although ironically the Edelman Trust Barometer of 2019 shows that the British public trusts business far more than it trusts the government – as mentioned in the last Governance Watch.

If these reforms are now seen not to deliver real change, the threads of that trust will scatter on the chilly wind.

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. 

We’ve just celebrated our 50th issue of Governance Watch, written by Dina Medland and we’ve learnt many things from covering the news.  Governance Watch started as a simple idea – to give anyone involved with boardrooms, a place to read and digest the latest articles and headlines in one place. It’s important for people who shape corporate governance to consider the wider business landscape and to stay informed with events that may affect their decisions.

Diversity, Inclusion and Progression

We are more than half way into January, and when it comes to politics, the New Year feels very much like the old one. Facing multiple challenges around technological transformation, skills shortages and changing consumer aspirations, much of British business has been tearing its hair out on the uncertainty around Brexit for over two years. During that period the UK government has, in its pursuit of best practice and the lure of Britain for business and investment, taken many steps to raise the bar on corporate governance. 

Raising That Bar: Corporate Governance

Britain is ending a turbulent and frustrating year around its referendum decision to exit the European Union on a good note when it comes to corporate governance, in which it leads the world. 

Executive Pay: Context is Critical

The socio-economic climate of Brexit has made boardroom pay - already a topic regularly simmered and stirred in the United Kingdom across a broad range of stakeholders – into rich ground for politicians.

Diversity:  Gender, BAME and Power

Men in Britain might be playing up achievements in appointing women to positions of power, responsibility and leadership in business boardrooms and beyond, but most women will tell you (at least privately), that they think very little has changed in terms of the barriers to gender diversity.

Conflict of interest

The Patisserie Valerie saga, covered in the last Governance Watch, is the story that just keeps on giving on corporate governance. 

The Chief and CFO had “second helpings of shares despite no explanation from the chain” reported the Financial Times, following up with a report about £2.9m made from bonus share schemes, and then the company’s admission that it had awarded these bonuses without informing shareholders.  

Accounting 

It has been only a week since first media reports on the goings-on at Patisserie Valerie, which said it had discovered "significant, and potentially fraudulent, accounting irregularities" and a £1 million unpaid tax bill. We were told: "The board has now reached the conclusion that there is a material shortfall between the reported financial status and the current financial status of the business." It thrust Chairman Luke Johnson, CEO Paul May, Finance Director Chris Marsh and auditors Grant Thornton into the spotlight.