May 13, 2016 Trustworthy information and trustworthy behaviour
As a director, why is corporate governance important to you? Does it matter at all, do you pay lip service to governance as part of the code of director’s duties, or do you see it as a prerequisite for providing strong leadership to your organisation?
Speaking in March Sir Winfried Bischoff, chairman of the FRC, commented that “High standards of corporate governance and reporting are important for the fair and effective functioning of the capital markets.” But governance has a far broader impact than simply smoothing the wheels of capitalism. The governance which directors bring to an organisation will affect every aspect of that organisation from employee engagement and customer service to reputation and the ability to raise investments.
This last aspect was highlighted by Legal & General Investment Management (LGIM) in April when it revealed that in 2015 it attended 545 company meetings and voted against 18% of the resolutions. LGIM is in effect using its votes to put pressure on companies to improve areas which it sees as being of concern including directors’ remuneration, diversity, lack of tax transparency and cyber security.
LGIM are not alone in this; investors are increasingly looking for corporations to espouse values of fairness and trust both in everyday actions and in the way in which they interact with consumers, investors and others. The recent anticorruption summit in London may have garnered headlines for the comments made by the Prime Minister about certain countries, but anticorruption action is as important at company level as it is at country level.
That is why the government is currently planning a number of anticorruption measures including strengthening the code of conduct for professionals such as accountants and solicitors as well as creating an anticorruption coordination centre in London. In addition, the government plans to introduce a specific corporate offence for executives who fail to prevent fraud and money laundering inside their companies.
Strong governance isn’t about paying lip service to the rules or ticking boxes to confirm that certain actions have been carried out. Strong governance is about leadership, about demonstrating everyday the level of trustworthy behaviour which you would expect from your people, and about providing information which is open, transparent and fair. As Sir Winfried Bischoff commented in a recent speech “trustworthy information and trustworthy behaviour support the needs of investors and generate confidence in boards” but they also set the tone for the entire organisation.