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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No, David Cameron’s speech was not “left wing”

Come on, guys.

There is a strange journalistic phenomenon that occurs when a party leader makes a speech. It is a blend of groupthink, relief, utter certainty, and online backslapping. It happened particularly quickly after David Cameron’s speech to Tory party conference today. A few pundits decided that – because he mentioned, like, diversity and social mobility – this was a centre-left speech. A leftwing speech, even. Or at least a clear grab for the liberal centre ground. And so that’s what everyone now believes. The analysis is decided. The commentary is written. Thank God for that.

Really? It’s quite easy, even as one of those nasty, wicked Tories, to mention that you actually don’t much like racism, and point out that you’d quite like poor children to get jobs, without moving onto Labour's "territory". Which normal person is in favour of discriminating against someone on the basis of race, or blocking opportunity on the basis of class? Of course he’s against that. He’s a politician operating in a liberal democracy. And this isn’t Ukip conference.

Looking at the whole package, it was actually quite a rightwing speech. It was a paean to defence – championing drones, protecting Britain from the evils of the world, and getting all excited about “launching the biggest aircraft carriers in our history”.

It was a festival of flagwaving guff about the British “character”, a celebration of shoehorning our history chronologically onto the curriculum, looking towards a “Greater Britain”, asking for more “national pride”. There was even a Bake Off pun.

He also deployed the illiberal device of inculcating a divide-and-rule fear of the “shadow of extremism – hanging over every single one of us”, informing us that children in UK madrassas are having their “heads filled with poison and their hearts filled with hate”, and saying Britain shouldn’t be “overwhelmed” with refugees, before quickly changing the subject to ousting Assad. How unashamedly centrist, of you, Mr Prime Minister.

Benefit cuts and a reduction of tax credits will mean the Prime Minister’s enthusiasm for “equality of opportunity, as opposed to equality of outcome” will be just that – with the outcome pretty bleak for those who end up losing any opportunity that comes with state support. And his excitement about diversity in his cabinet rings a little hollow the day following a tubthumping anti-immigration speech from his Home Secretary.

If this year's Tory conference wins the party votes, it’ll be because of its conservative commitment – not lefty love bombing.

Anoosh Chakelian is deputy web editor at the New Statesman.