Put 'Public Value' At The Heart Of UK Corporate Governance
In the United Kingdom we rely on a Corporate Governance Code for business behaviour which is ‘principles’ based. But it does not spell out the values behind it, and following principles without clearly stated values leaves room for manoeuvre in interpretation. Perhaps that’s the intention- avoiding being prescriptive. But the thinking on giving the principles more granularity is already there - you can see it in both the revised UK Corporate Governance Code and the strengthened Stewardship Code.
Avoiding corporate boiler plate reporting has become the bane of the regulator. Would this change if the Code were to spell out the values expected from every publicly listed business in terms of ‘public value’?“ “Public value is essentially what the public values, seen at the level of the individual citizen grounded in their everyday experiences in the public sphere” according to a brochure on public value management from Policy Network, the international progressive think-tank based in London.
The revised UK Code has added an emphasis on diversity and transparency, and talks of employers establishing a culture that “promotes integrity.” Having strong moral principles - often given as the definition of integrity - however, is not the same as valuing, for example, gender equality.
In the past, the corporate governance watchdog and accounting regulator, the Financial Reporting Council (FRC), has talked of why we should promote and celebrate diversity . But, unless I missed it, there has been no talk of upholding gender equality as a fundamental human value in 2019. To bring this to the top would cover the gender pay gap, gender progression, women on boards, women in leadership positions, the active establishment of a talent pipeline in every business, recruitment practices, nomination committees, succession planning, and so on.
For other examples of what I mean by ‘values’, look at the UN’s Sustainable Development Goals (SDGs). Apart from being clear goals, No 5 (Gender Equality), No 8 (Decent Work and Economic Growth) No 10 (Reduced Inequalities), and No 13 (Climate Action) are, also clear embodiment of values.
The 17 Sustainable Development Goals (SDGs) adopted by all UN Member States in 2015. Source: UN
It is unsurprising that No 13, Climate Action, because of a perceived urgency across all geographies, has in 2019 shot to the top of the agenda for many businesses. That is because it has been boosted by regulators, investors, the commercial thinking at many businesses keen both on survival, and mindful of listening to a broad global span of stakeholders, and future customers. It affects all of us equally, but younger generations have the most to fear, as they have the most to live for.
The UN Global Compact has explained how businesses can work with the SDGs, and there are many initiatives being undertaken to do just that. It is part of a growing questioning of the role of business in society and of its purpose beyond profit and shareholder primacy.
In an FT series on companies, profit and purpose, Stephen Badger chairman of Mars, the private group, spoke recently of balancing profit with creating value for society. He cited as a tool for systemic change a theory of business which he traced to a letter written from top management in 1947. It argued that the company’s sole purpose was to generate “a mutuality of benefits” for the consumers, staff, suppliers, distributors and communities on which it depends.
This sort of questioning and approach may have particular relevance in Britain in 2019, as we struggle to deal with the result and aftermath of the 2016 EU referendum in a country which appears to grow shockingly more divided with each passing day. No single action is going to be the solution to that - it requires a coming together on clearly defined national values. If the private sector is seen as a critical engine of economic growth, and UK business holds the people’s trust in times when it is a fast evaporating commodity, then clarifying the nationally held terms of acceptable business surely makes sense.
The ongoing conversation around Public Value at this Policy Network event in London the other day was inspiring. Organisations are engaging citizens and communities in structures of co-creation and consultation to pursue public value in the design and implementation of policies and projects. This public value approach is described as representing the ‘humanisation’ of business activities and public policy “recognising the contribution we all make to the public sphere.” In the context of publicly listed businesses, it is a great way to look at how human capital - people - really are at the heart of a business, and their treatment reflects its values.
That is exciting. As was hearing a CEO (who happened to sit next to me and was speaking at the event) talk about what gets people like him out of bed in the morning - a sense of purpose. Paul Howarth, CEO of the National Nuclear Laboratory (NNL) said: “We get out of bed in the morning (at NNL) to address environmental restoration and clean energy - public value in the future. We are here to harness nuclear science to benefit society, and that’s a pretty clear sense of purpose.”
Dr Paul Howarth, CEO National Nuclear Laboratory (NNL) at Public Value event at Policy Network, London 19/11/2019
NNL is UK government owned and operated, but the same sense of purpose is increasingly being expected by a younger generation from all CEOs of publicly-listed businesses. UK retailers might want to think about that more carefully, as they are relying on old brand loyalties while consumer identification and aspirations shift, and price value becomes ever more transparent and accessible.
How a business does business is clearly going to be ever more critical going forward as environmental, societal and governance (ESG) concerns continue to rise to the top of the boardroom agenda. They will do so faster if they are enshrined better in the UK Corporate Governance Code. A licence to operate is a living thing.
A very recent example of that comes in the news that Uber, the ride-hailing alternative taxi service, has lost its licence to operate in London. The reasons given are around passenger safety, which must surely always be paramount. Uber is being treated as a utility providing an essential service to many Londoners, not just an innovative start-up. It has been deemed as not a “fit and proper company” to operate in the capital. Quite right too. Because, if “public value” came first here, safety would rank above the public value of cheaper private car travel.
There is much to debate around how one defines public value. The Policy Network event pointed to the work being done with the Samuel Lindow foundation and UCLAN on this issue. Perhaps it could be extended more widely to businesses across all sectors of industry.
Because at the end of the day, if the UK’s world class corporate governance system is starting to show any signs of wear and tear, this is not good timing. Corporate Governance is the beating heart of every business and dictates just about everything, but it is mistaken everyday in the UK as something that merely needs ‘compliance’, or box-ticking. The person on the street almost certainly has no idea what it is all about. That means that something continues to be wrong with the way in which it is being presented.
Earlier this month Tim Martin the founder of JD Wetherspoon, the pub chain, attacked two of his biggest shareholders accusing them of hypocrisy in corporate governance. It’s quite easily done, in fact - there’s a lot of it about. Both Columbia Threadneedle, Wetherspoon’s largest institutional shareholder, and BlackRock, the world’s biggest asset manager, failed to support the group’s non-executive directors because they had been on the board too long.
Mr Martin pointed out that both asset managers had equally long-serving directors on their own or their parent company’s board, when, as the FT reported “under the UK corporate governance code, which UK companies must follow or explain why they do not, independent non-executive directors are limited to nine years’ service.”
That is when corporate governance becomes all about ticking boxes. I think Mr Martin is right, although I find that personally surprising. Perhaps everyone would take corporate governance more seriously if it seemed based around principles that affect the lives of all stakeholders and not just the few who are involved around the boardroom ?
If the aim of a Corporate Governance Code for business is more widespread engagement as well as a clear setting out of where Britain stands on its accepted values for business, it could benefit from changing the language as well as some of the thinking - following the regulator’s own mantra of the importance of culture to the running of any business.
Main Image Credit: Cristina Gottardi on Unsplash
