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Long-term sustainability

11 December 2016 by Simon Osborne

Long-term sustainability - read more

Good citizenship is vital to the creation of value, says Simon Osborne

In November, I visited our branches in Uganda and Mauritius to celebrate our 125th anniversary and to take part in graduation ceremonies for the East Africa region and Mauritius. I spoke at our inaugural conference for governance professionals in the East African region and the ‘good citizenship’ theme struck me as particularly appropriate.

Good citizenship is about ensuring that many benefit from the actions of a few and from demonstrable respect for the rule of law. Good governance is a major part of this, helping governments to put corporate life and economies on a surer footing and encouraging business leaders to restore public confidence in business. Boards need to be clear about their company’s place in society and, to that end, identify their business purpose and prescribe the values and ethical standards which will underpin delivery of that purpose

In the UK, the focus is on responsible capitalism and how corporate governance may be improved to be more inclusive. Prime Minister Theresa May has stressed her commitment to the free markets, but argued that they can only be defended if they work for everyone. Whether or not that can be achieved will come down to several things, not least of which will be the successful management of people issues − a realistic alignment between business purpose, culture, values, human resource practices and performance reward systems.

Similarly, there needs to be better management of stakeholder issues, i.e. the relationship between culture and business models, with shareholders, customers, suppliers and employees, and the impact on communities and the environment being given greater consideration.

Finding a solution that works for everyone will be difficult to achieve, but that should not dissuade us from trying. Adopting sound values and adhering to high ethical standards is the essence of good citizenship and, as governance professionals, we have a role to play in demonstrating that organisations are acting in the best interests of society.

Good governance helps support value by enhancing reputation, reducing losses and inefficiencies, saving boards time and improving the decision-making process. If we can better articulate the business case for good governance practices, that may incentivise directors to exhibit appropriate boardroom behaviours more rigorously. Similarly, more focus on duties, responsibilities and liabilities may generate a heightened awareness of the need to exhibit appropriate boardroom behaviours more readily.

These messages are now new. ICSA was promoting them in 2009 in its publication ‘Boardroom Behaviours’ and in 2011 in the ‘Boardroom Effectiveness Guidance’ it produced for the FRC.

The importance of our added-value in terms of ensuring that companies are led in the right direction, not just legally but also ethically, should not be underestimated. Across the world, people are tired of businesses behaving dishonestly.

We are also seeing a greater focus on sustainability – what companies are doing to ensure that they will be able to do what they do in 10 or 20 years’ time; to ensure they tread lightly on the earth.

This sustainability focus has driven another change: the increasing integration of company reporting, with all aspects of the business being taken into account to provide a clear picture of the business. Transparent reporting, together with a focus on sustainability and appropriate corporate behaviour, will create a licence for the company to operate in society and help to re-engender trust in business that is currently lacking.

For these to flourish, it is essential that a commitment to them exists right at the top of the company; that boards ensure corporate governance is embedded from the top to the bottom of the company. We responded to the BEIS Select Committee inquiry on this subject and the Government has now published its green paper on which our Policy Director, Peter Swabey, comments on – see his article 'The governance tide'. The Government’s focus on our core interest is welcome and we will remain in touch as the Government works through the consultation.

Promoting accountability, transparency, integrity and stewardship to ensure that organisations function in a way that is productive for society is the primary way to promote good citizenship – we should be proud of the essential role that we play. Just as the FRC sees a healthy corporate culture as a valuable asset and a source of competitive advantage, good citizenship is also vital to the creation and protection of long-term value.

Simon Osborne is CEO of ICSA: The Governance Institute

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