Words .....that work

used with discretion and in harmony, to excite, persuade or merely reveal

Blog : BOARD TALK

It's About The Values, Stupid

Posted on September 17, 2014 at 4:15 AM
There's a bit of slapping into shape going on, more acceptably termed 'toning from the top' when it comes to UK corporate governance. The FRC has today updated the UK corporate governance code. 


Following the review by Lord Sharman in the wake of the financial crisis on the assessment and reporting of risk by boardrooms, the updated code requires UK plc to think harder about financial viability. If directors wish 'safe harbour' on their judgements, they are advised to place their thoughts firmly and visibly in the strategic report.


Value One: The reinforcement of individual accountablity 




FRC CEO Stephen Haddrill: "Recognising the different circumstances for business, companies are allowed to choose the period over which they look forward but we are clear this should be more than a year and reflect the nature of the business. Crucially the directors should explain their reasoning to investors."


Value Two: A commitment to clear and concise communication 


The National Association of Pension Funds (NAPF) has just published its second AGM season report. It shows that last year 28 companies in the FTSE 100 and FTSE 250 were subject to significant investor concern around remuneration. By mid August this year eight of those companies had received further critcism to either their policy or its implementation.


Will Pomroy, Corporate Governance Lead, NAPF says: "To receive significant shareholder dissent on remuneration one year might be regarded as a misfortune, but to do so a second year really does not reflect well. We urge all those firms whose shareholders have so clearly signalled their dissatisfaction this year to begin in earnest a conversation to resolve the concerns well ahead of next year's AGM season."


"While it is important to understand what and how a director is being paid, it is equally important to understand why that is appropriate" he adds.


The FRC, it seems, agrees. The Code has been changed in relation to remuneration. "Boards of listed companies will now need to ensure that executive remuneration is designed to promote the long-term success of the company and demonstrate how this is being achieved more clearly to shareholders" it says.


Value Three: Aligning pay with purpose in the longer-term 


This is potentially a very big deal. "The changes on remuneration also focus companies on aligning reward with the sustained creation of value" says the FRC. Just think of banks....


To quote Francis Bacon (1561-1626):

"Words are the tokens current and accepted for conceits, as moneys are for values." - The Advancement of Learning


And the FRC says: "One of the ways in which such debate can be encouraged is through having sufficient diversity on the board, including gender and race." It cautions:  "Nevertheless, diverse board composition in these respects is not on its own a guarantee. Diversity can be just as much about difference of approach and experience."


So it intends to give succession planning a great deal more thought - which coincides with the increasingly loud mutterings of instituional investors.


The inclusion of 'race' in its definition of diversity is a significant step. It has already been welcomed  by Business In The Community. 

"Including this small yet significant amendment will be a clear and strong signal to UK employers that the FRC understands the importance of employers embracing diversity across race as well as gender" says Sandra Kerr OBE, Race for Opportunity Director.


“Currently one in four young people in both primary and secondary education is from an ethnic minority background, and by 2050 one in three of the working age population will be from an ethnic minority background. Organisations need to build race and gender diversity into their succession plans now to future proof for the rapidly changing demographic of diverse customers, clients and communities" she adds.


Value Four: Appreciating the need for change for better representation at the top and to promote equality

Categories: Corporate, Governance, Accountability