In summary, we strongly support both the direction and the actions of the proposed revisions. We believe, however that further clarity should be provided in both the Principles and the Provisions that involve culture and broader stakeholder engagement. These are key areas of change for companies to integrate into their governance and management processes.
In terms of culture, it is important that it is understood that culture is both an internal and external influence that can be understood and proactively managed. We invite the Financial Reporting Council to better reflect its clear definition of Culture as outlined in its 2016 report.
With reference to stakeholders, too much emphasis has been placed on the workforce, with not enough regard taken to the importance and influence of other stakeholders such as suppliers, customers, regulators, local communities and others. It is important that each company undertakes a test of “materiality” with its full stakeholder universe and includes the interests of wider stakeholders into its decision-making processes. At the moment, many companies will believe that purely including the workforce in some form, will satisfy the governance requirements, when in many cases other external stakeholders can have an equally significant impact on the long-term performance of a business.
Best practice must encourage a more active listening role for companies, to build and maintain successful relationships with a wide range of stakeholders.