Culture and purpose are now part of the daily lexicon in the corporate reporting space, but are they merely buzz words? In our view, the answer is no, but if companies don’t embrace the reporting of purpose and culture in an authentic way, these two essential corporate values will be reduced to little more than boxes waiting to be ticked.
Purpose, culture, strategy and business model are interlinked and flourish best when considered together – for example, does your purpose make clear how you are contributing to a sustainable world? What is your company’s desired culture, and how is it measured? How does your business model help deliver your purpose, and how does culture drive your strategy?
A decade or so ago, environmental, social and governance (ESG) issues stood on the sidelines, but not any longer. Boards across the globe are now tasked with answering some tough questions on ESG such as: what are the positive and negative impacts your company is having on society?; what are the risks and opportunities associated with your overall strategy?; how are equality, diversity and inclusivity issues considered across the organisation’s spectrum of employees?; how is climate change likely to affect the company’s business, operations and value creation in the foreseeable future?; and is the management team fully prepared to address internal and external questions around pay and inequality? In our view, a company will only have full control of its ESG destiny when its board truly engages with these topics and gives answers that mean something to all stakeholders.
While boards need to do more on their own initiative, investor pressure remains a key influencer of effective corporate governance and stewardship. To that end, it is to be hoped that the revised stewardship code, currently under consultation, will increase demand for more effective stewardship and investment decision-making better aligned to the needs of institutional investors’ clients and beneficiaries.
Proposed changes to the code cover areas including:
· purpose, values and culture;
· recognising the importance of ESG factors; and
· stewardship beyond listed equity.
Key matters investors can question boards on concern the risks associated with the sources of raw materials; how climate change will impact viability; the best ways to use the cash on the company's balance sheet; how the company plans to raise capital to fund future growth; and how the company’s purpose drives the business model. Culture, board skills and the overall remuneration policy are other key areas of investor interest.
Listening and responding to employees
The revised UK Corporate Governance Code places the employee voice and interests central to governance best practice and suggests three options for gathering the views of employees:
• appoint a director from the workforce;
• create a workforce advisory panel; and
• appoint a designated non-executive director.
If one of the above is not suitable, a combination of the methods may be used or a board may decide to develop its own solution altogether. Whatever solution is chosen, it’s important that employees’ views are considered fully and are reflected meaningfully in the annual report. Only in this way can boards demonstrate that they are ‘future fit’ and focused on the long-term sustainability of the business.
At the conference, we launched ‘Navigating Uncharted Territory’, a Luminous White Paper bringing together insights from our recent round table discussion on changes to the reporting landscape and practical suggestions around implementing those changes. As per the publication’s title, we hope that it will go some way to helping corporate reporters find their way through new and unfamiliar requirements.
If you would like a copy of the White Paper, download it here or drop an email to email@example.com