“We will explore ways to improve and extend good governance across big business so that everybody plays by the same rules and we create an economy that works for everyone, not just the privileged few” Theresa May told the CBI in late November. As former Labour Leader Ed Miliband ironically tweeted that day : “More Marxist anti-business ideas. These Tories…”
The growing number of Government inspired reviews and consultations, whether cross sector ( like the Corporate Governance Review) or sectoral (as the CMA’s Care Homes Market Study) are often accompanied by colourful, some might say “anti-business”, rhetoric. In its review of the asset management industry (AMMS) the regulator, the FCA, bemoaned the fact that “the asset management sector as a whole has enjoyed sustained, high profits over a number of years”. In the face of this rhetoric and the widespread public distrust of the establishment and the “metropolitan elite” illustrated by the Brexit vote, it’s no surprise that trust in business continues to decline. This year’s IPSOS Mori Veracity Index showed that only 33% of Britons trust business leaders to tell the truth – not only behind nurses, doctors and teachers – but also behind civil servants, lawyers, pollsters, economists and bankers.
Businesses rely on their reputation to secure help from Government or to premium price products or to recruit the best quality staff for competitive salaries. And the reputation of business generally is under threat at a time when business wants fundamental things from Government. As Head of the City of London Corporation Mark Boleat told the Mail on Sunday last week “Britain needs to make sure its tax and regulation is as attractive to finance as possible” . Sectors wanting tax and regulatory advantages from Government have the best chance of success if they are favourably regarded and trusted by Government.
The central question facing businesses that care about their reputation is whether this storm will blow over and it’s another year of “keeping your head below the parapet” – or whether something more fundamental is required to maintain or recover reputation? It seems that Simon Walker, Director General of the Institute of Directors (and one of businesses’ lobbyists) has decided, as he recently wrote in The Telegraph that: “Theresa May is right, something must be done about executive pay”.
I know that many businesses will decide that discretion is the better part of valour. Or that they have excellent reputations individually, regardless of business or their sector generally. But just for a few minutes, ahead of what I believe will be a very tough 2017, I’ll suggest some things businesses could do – if they wanted to take the Government’s corporate governance and inequality agenda head on:
- Physically reconnect with society – decide to spend a greater proportion of the year where stakeholders are (employees, customers, intermediaries, influencers, shareholders, government, regulators) – and meet as many of them as possible. For businesses with multiple locations, should Board meetings move around them?
- Consider executive pay and ask whether “society” is right? If the quantum of guaranteed earnings or the rate of increase (relative to the workforce generally) are “unfair” (I’ll leave the definition for another time) – do something about it.
- Introduce a greater level of transparency than all of the rules and regulations require, whether that is earnings data or whether senior management pay UK tax.
- Make community/society engagement front and central to the corporate purpose (and not isolated as “just CSR”) – and review all CSR/community budgets, asking: how much does our corporate spending act to reduce inequality in society? Or is our spending directed to the areas of most concern to our stakeholders?
- Review recruitment policies – do they act to help the whole of society – and is it possible to meet the corporate purpose and help reduce inequality in society? Should companies take and train school leavers wherever possible?
- Take action ahead of any Government review and ensure all stakeholders are represented at Board level (particularly employees) if a company believes that is the right thing to do.
- Commit to reflect society (or a business’ stakeholders) at all management levels, not just in terms of gender and ethnicity but also disability and possibly even non-university and state education backgrounds.
- Commit to talk publicly and be seen on television and the internet, and heard on radio. Challenging times require publicly visible companies and preferably CEOs and management. Be prepared to talk about broader issues and executive pay as well as the company’s products and services.
- Commit to report on more than just financials including an organisation’s impact on society and impact on the environment (regulatory action may be coming in these areas anyway, of course).
- Invest to ensure that the sector’s trade body is high quality and well-funded, as many are under-resourced. UK trade bodies tend to be much smaller than those in the USA, and often senior industry players do not get sufficiently involved. This could be crucial in the period when the Government develops and reveals its industrial strategy.
At Lansons, we’d be very keen to meet to discuss ways of gaining reputational advantage, whether you work with us currently or not. We do believe that there will be winners and losers in what Philip Hammond has called a period of “unprecedented uncertainty” – and that good reputation management can play a part in determining who those winners are.
In the meantime, thank you to all of our clients and other stakeholders for your support during the roller coaster of a year that was 2016. We wish you the compliments of the season and a great break – and we look forward to working with you next year.
This article featured in the December 2016 issue of our quarterly newsletter. You can sign up here.