Rethinking governance: what should companies be responsible for?

It is time that we looked at the basic question of what should companies be responsible for, writes Jo Iwasaki.

The global financial crisis impacted not just on the economy, it intensified the challenges on corporate culture more broadly. Remuneration, short-termism, engagement with shareholders and, alongside these the business agenda and cultural issues such as diversity now form the core of the corporate governance debate.

All these issues highlight how companies are run. One might say that these issues have always existed. However, we have taken advantage of the current interest and explored whether the existing models of running companies need a major rethink.

Corporate governance looks at much more than board procedures and regulatory compliance. As recent business issues and controversies have demonstrated, shareholders, government, and the broader public are all interested in how companies respond to the changing business and social environment. The nature of the capital markets has changed so much it has influenced our thinking around the relationships between companies, boards and shareholders.

It is time that we looked at the basic question of what should companies be responsible for. Responsibilities need not be seen as onerous they prompt us to be alert to diverse interests that surround and affect businesses today. With a keener awareness of their surroundings and the willingness to respond, companies can be better prepared to identify where new opportunities are.

In recent ICAEW paper 'What are companies responsible for' we discuss four key responsibilities of companies. They are not a definitive or exclusive list, but we have dared to present them as a basis to prompt debate.

Achieving a business purpose

A company needs to have a business purpose that is easy to understand. As well as shareholders, everyone involved in a company, including employees, customers, suppliers and lenders, expect companies to generate continuing profits. However, maximising profit is not the only business purpose of a company.

A business should not be so focused on a specific purpose that it ignores changes in its environment. Innovation and adaptability are essential for a business to be viable over a corporate life.

Behaving in a socially acceptable way

Without being written down, social norms are there to set boundaries for what is acceptable as business culture and behaviour, in the societies where the company operates. Companies may need to, in some cases, actively go the extra mile to identify what is socially acceptable. This would certainly cost time and resources.

Companies also need to recognise that different communities (e.g. the financial services sector, or a particular industry) develop their own norms and these may be very different from those prevalent in a wider society.  This gap may suddenly become apparent when their values are subject to external scrutiny.

Meeting legal and regulatory requirements

Legal and regulatory requirements relate to issues such as employment, health and safety, anti-corruption and taxation for example and private contractual, legal and financial obligations such as company pensions and debt covenants.

Being based on law, these are mostly public, and understood by most people. Breaches of these requirements may lead not only to formal sanctions and litigation but more importantly, reputational damage.

Stating how their responsibilities are met

Companies are expected to acknowledge their responsibilities, provide information on how they meet them and be accountable. This is about acknowledging those responsibilities publicly, reporting on how they are discharged, and being answerable for consequences. It helps companies construct a robust foundation for building and maintaining trust.

If companies are fully aware of the range of their responsibilities and attempt to meet them, legislators and regulators can focus on developing codes and practices that are proportionate. This is a big 'if' and to imagine such change to happen instantly is naïve. However, without a change in how we think, the effectiveness of laws and regulations would be limited. Only when companies embrace the principles which are underlying laws and regulations, will we see corporate behaviour change. And an end to the rather cynical box-ticking culture at present.

Jo Iwasaki is Head of Corporate Governance at ICAEW 

A statue of a dragon marks the boundary of the City of London. Photograph: Getty Images

Jo Iwasaki is Head of Corporate Governance at ICAEW.

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The strange death of boozy Britain: why are young people drinking less?

Ditching alcohol for work.

Whenever horrific tales of the drunken escapades of the youth are reported, one photo reliably gets wheeled out: "bench girl", a young woman lying passed out on a public bench above bottles of booze in Bristol. The image is in urgent need of updating: it is now a decade old. Britain has spent that time moving away from booze.

Individual alcohol consumption in Britain has declined sharply. In 2013, the average person over 15 consumed 9.4 litres of alcohol, 19 per cent less than 2004. As with drugs, the decline in use among the young is particularly notable: the proportion of young adults who are teetotal increased by 40 per cent between 2005 and 2013. But decreased drinking is not only apparent among the young fogeys: 80 per cent of adults are making some effort to drink less, according to a new study by consumer trends agency Future Foundation. No wonder that half of all nightclubs have closed in the last decade. Pubs are also closing down: there are 13 per cent fewer pubs in the UK than in 2002. 

People are too busy vying to get ahead at work to indulge in drinking. A combination of the recession, globalisation and technology has combined to make the work of work more competitive than ever: bad news for alcohol companies. “The cost-benefit analysis for people of going out and getting hammered starts to go out of favour,” says Will Seymour of Future Foundation.

Vincent Dignan is the founder of Magnific, a company that helps tech start-ups. He identifies ditching regular boozing as a turning point in his career. “I noticed a trend of other entrepreneurs drinking three, four or five times a week at different events, while their companies went nowhere,” he says. “I realised I couldn't be just another British guy getting pissed and being mildly hungover while trying to scale a website to a million visitors a month. I feel I have a very slight edge on everyone else. While they're sleeping in, I'm working.” Dignan now only drinks occasionally; he went three months without having a drop of alcohol earlier in the year.

But the decline in booze consumption isn’t only about people becoming more work-driven. There have never been more alternate ways to be entertained than resorting to the bottle. The rise of digital TV, BBC iPlayer and Netflix means most people means that most people have almost limitless choice about what to watch.

Some social lives have also partly migrated online. In many ways this is an unfortunate development, but one upshot has been to reduce alcohol intake. “You don’t need to drink to hang out online,” says Dr James Nicholls, the author of The Politics of Alcohol who now works for Alcohol Concern. 

The sheer cost of boozing also puts people off. Although minimum pricing on booze has not been introduced, a series of taxes have made alcohol more expensive, while a ban on below-cost selling was introduced last year. Across the 28 countries of the EU, only Ireland has higher alcohol and tobacco prices than the UK today; in 1998 prices in the UK were only the fourth most expensive in the EU.

Immigration has also contributed to weaning Britain off booze. The decrease in alcohol consumption “is linked partly to demographic trends: the fall is largest in areas with greater ethnic diversity,” Nicholls says. A third of adults in London, where 37 per cent of the population is foreign born, do not drink alcohol at all, easily the highest of any region in Britain.

The alcohol industry is nothing if not resilient. “By lobbying for lower duty rates, ramping up their marketing and developing new products the big producers are doing their best to make sure the last ten years turn out to be a blip rather than a long term change in culture,” Nicholls says.

But whatever alcohol companies do to fight back against the declining popularity of booze, deep changes in British culture have made booze less attractive. Forget the horrific tales of drunken escapades from Magaluf to the Bullingdon Club. The real story is of the strange death of boozy Britain. 

Tim Wigmore is a contributing writer to the New Statesman and the author of Second XI: Cricket In Its Outposts.