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Annoying regulation or commercial reality?

Jul 2018

The Financial Reporting Council published its revisions to the UK Corporate Governance Code on 16 July 2018.  They made clear that UK companies must explain how they manage their culture and look at a wider set of stakeholders to promote their role in society.   It is a sad state of affairs that the regulation is required at all.  Despite the hundreds of millions of pounds spent on marketing, corporate brands and public relations, the level of trust in our companies remains so low. 

But is regulation the answer?  Is forcing companies to explain their actions in the Annual Report, a document few outside the investment world now read, going to solve the problem? 

The answer is yes, it will make a difference.  But, it won’t be made only because what is written deep within a document.  Boards will of course look at these areas more seriously now that they are being asked to report on them.  However, the real difference will be made because the changes the FRC has made are going to raise the volume of the debate. 

The issues of executive pay and gender diversity are not being addressed just because of regulation.  They are being addressed because this has become a high-profile issue.  They have moved from a governance requirement to directly affecting the company and putting pressure on the Board.

The new regulations on corporate culture and how a company behaves will mean they also become part of the public debate and an area of competitive advantage.  It has already started.  We have entered a new period of corporate evolution where the transparency of culture and behaviour have a direct influence on the commercial performance and valuation of a company.  Clients, customers and investors are voting with their cash.   

Those Boards that realise that culture and behaviour are worth investing in and managed to their best ability, rather than being buried in a document, will be those that will see the benefit.

 

If you would like to learn more about the approach a Board can take to better understand, measure and report on these areas, please do not hesitate to Contact Us.