2018 has already seen its fair share of corporate governance headlines. From the collapse of Carillion to the Cambridge Analytica/Facebook scandal, and from GDPR to gender pay gap reporting, there’s plenty to talk about.
Much of the media coverage has highlighted the negatives – the fallout when corporate governance is lacking (Carillion), the eye-watering potential fines for non-compliance with the new data protection rules, the shame-faced confessions of sometimes staggeringly wide gender pay gaps.
But governance does have a bright side. The Association of Chartered Certified Accountants (ACCA) says that the narrative is changing, and that the focus of the corporate governance debate, away from the media, is shifting “from an emphasis on compliance with processes and procedures to the effect of applying them”. What it means by this is that organisations are focusing increasingly on the benefits they can reap, in the long term, from good governance.
The ACCA has identified five recurring themes:
- The relationship between companies and society – There is a greater expectation of businesses to act in an ethical and community-benefiting way, and to look after their staff and customers. As Gen Z starts to enter the workforce, this expectation is only likely to grow.
- Diversity and balance – The ACCA points to the benefits of a diverse board membership, not just to be more reflective of, for example, the customers it serves, but also to avoid stale thinking. Following the first gender pay gap reports, many companies have challenged themselves to improve the gender balance of their executive teams and boards, whether through changing recruitment processes or focusing on career development and progression.
- Enabling an effective board – The board’s role in scanning the horizon and looking at the bigger picture is important in securing the organisation’s future. The emphasis is on open discussion and debate, which values a variety of skills and opinions.
- Executive remuneration – Being transparent about pay and giving regard to the gap between the pay of executives and average employees is important for perceptions of fairness – among staff as well as the general public. ‘Fat cat’ stories are sure to grab tabloid attention, while fair structures that reflect performance and contribution are likely to engender a more positive corporate culture.
- Gatekeepers of corporate governance – The ACCA highlights the role of investors, policymakers and the wider public in the ‘gatekeeping’ of corporate governance. Holding directors to account for failings of governance is sometimes a case of shutting the stable door after the horse has bolted – though the Government is currently consulting on potential future changes.
The message from the ACCA’s report is that taking these responsibilities seriously now will enable a company to reap the long-term benefits. Transparency, accountability and a sense of social responsibility are all characteristics that ‘speak’ to a growing proportion of society. Corporate governance isn’t just about stopping bad things happening, but also about nurturing a business for the long-term future.
If you’d like to learn more about the good, the bad and the ugly of corporate governance, why not attend our Corporate Governance Conference 2018? Our panel of expert speakers will talk you through the many changes taking place in 2018 and offer their insight and guidance on key trends and pitfalls.
Good corporate governance is not a box-ticking exercise. It is instead a means by which organisations may achieve their own purpose in the long term. ACCA believes there are some critical questions for companies – and also society - to consider. What should drive companies in shaping their business purpose? How can good corporate governance help? Society determines, in the long run, which businesses thrive, and how. ACCA, a global body of professional accountants, has a stake in this as the profession mediates between undigested data and the useful information on which society and businesses, equally, rely.