Latest UK Moves Highlight Shift of Emphasis On The Role Of Business In Society

Is it the great August end-of-summer getaway, the wash-out effect of a Bank Holiday weekend with heavy rain across the country, or a fundamental lack of trust in UK government statements against a backdrop of continuing uncertainty and national paralysis around Brexit ?

Today's announcement from UK Business Secretary Greg Clark of measures to crackdown on irresponsible company bosses who disregard workers' rights has met with a soggy media response. Yet it marks an important step in a shifting trend across the globe: an emphasis on value creation through sustainable business that acknowledges the worth of the people at its core.

The latest UK measures aim to safeguard workers and small suppliers when a company goes bust. Directors who have dissolved companies to avoid paying workers or pensions could be disqualified or fined by authorities for the first time. Struggling companies are to be given more time to rescue the business and help safeguard jobs.

But perhaps most surprisingly in terms of changing perspectives on business, the announcement from the Department of Business, Energy and Industrial Strategy (BEIS) said that boardrooms are now to be asked to explain to shareholders how they can afford to pay dividends alongside capital investment, workers’ rewards and pension schemes.

In my latest Governance Watch last week for a boardroom consultancy, I looked at some of the challenges facing business at the end of this summer of discontent, with Britain's business confidence reported by the Institute of Directors (IOD) to be at its lowest level this year.

These are weighty challenges, some unlike any encountered before due to technological transformation and rapidly changing business models. They will require innovation in future ways of working which in turn requires fresh thinking, cognitive diversity and refreshed boardrooms. It is an issue that deserves at least as much attention as has been paid since 2011 to gender diversity in boardrooms and on the executive management team.

'Work Harder' screams the blue neon sign in the image with this post - but in reality it is all going to be about working better and together. All the signs are that it is the human in human beings that will offer the most valuable skills for the future: empathy, communication and collaboration. That requires engagement between business and its workforce.

Technological transformation and the use of artificial intelligence also hold lessons for new ways of measuring corporate governance, as covered previously on Board Talk.

But while we are using new and revised thinking on corporate governance in the UK as the guide, there is also a new emphasis on 'social value.' Add in 'worker's rights' and there is a perceptible shift in the serious conversations around where power lies.

Some final links here to previous writing, not in a self-promotional frenzy, but to save time and hold your attention this weekend with a shorter post. Published in May on Board Talk : FTSE100 Pays Six Times More In Dividends Than Into Pension Schemes.

This is a subject I have covered repeatedly since a post on Forbes in 2016:  It's About My Pension, Stupid: Pensions Are A Corporate Governance Issue . It was further explored in a chapter for a book published in 2017 by the then Centre for Progressive Capitalism (now the Centre for Progressive Policy).

Pensions have, until very recently in the UK, had little attention. You could say they still suffer from the label 'corporate governance' had when I started writing about it around 2010 - interesting only for 'anoraks', a very British term often used by business media (including the Financial Times) at the time to flag geeks concerning themselves with excessive detail.

Then, almost a decade ago, the details of better corporate governance were deemed excessively boring, relegating those focusing on it to an invisible status. But if you were entirely focused on the details of executive pay, it conferred status as a 'remuneration consultant' with a place on the business lobby circuit. Look at it like that, and you can see that times have changed.

Historically too, pensions have been covered by UK mainstream media divided into silos of focus : the reporter covering pensions has not necessarily been the reporter covering corporate governance or the one focusing on investor issues and often nobody joins the dots. But when a BHS or a Carillion collapses, pensions are thrust into the limelight.

Take BT - for years it had the second-worst funded pension deficit in the world but it paid loads in dividends. Today it is in the media headlines regularly for the wrong reasons, and is now looking for a new CEO. Early this year it finally tackled the closure of its defined benefit pension scheme.  As a business that is a key player at the heart of the UK's goals for digital transformation, it has a key role to play as a business in society.

Even on a soggy Sunday in a country that feels jaded at the end of August, today's announcement from BEIS will be welcomed, not least by investors. Stewardship is also the next focus for the Financial Reporting Council (FRC), the accounting and corporate governance regulator whose workings are currently under scrutiny by the Kingman Review.

Globally, stewardship is building focus and gathering strength. Stewardship Asia out of Singapore visits Oslo next week with Future Boards of Norway (with which I have an affiliation) to share views and best practices. Watch this video from Stewardship Asia's gathering in 2017.

A final point to note on the UK government's announcement today. The issue of independent and valuable board evaluation of FTSE 350 companies is one that has been neglected for too long, covered frequently, and most recently here on Board Talk. . The latest revisions to the UK corporate governance code made some improvements in terms of requirements on such evaluations, but it remains a market ripe for abuse due to over familiar networks, lucrative fees, and the absence of any real desire to hear or to provide critical challenge.

Now the government has invited ICSA: The Governance Institute to convene a group of investors and companies to develop a code of practice for external board evaluations.

I know ICSA well, have worked alongside it around corporate governance issues. Its software arm kindly sponsored this blog on an informal verbal contract based on trust for four years, with no editorial control. It was famously responsible for the board evaluation of ENRC, which blew the lid on the workings of a company described by ousted board member Ken Olisa at the time as "more Soviet than City."

But. ICSA clearly provides board evaluation - and as such seems a surprising choice for this role. Because at the heart of all corporate governance failure, there is often conflict of interest.