“ While changes to the Code raised the bar considerably and have led to some high-quality reporting, greater focus is needed on longer-term sustainability including stakeholder engagement, diversity and the importance of corporate culture.”
Financial Reporting Council (FRC)
Have you seen the high profile examples of poor corporate governance over the past couple of years months?
Well, in response to these, the FRC has called for clearer, more meaningful reporting from companies when applying the Principles of the new Code.
It has begun focusing much more on how companies are building relationships with key stakeholders and establishing a culture that links company purpose with business strategy, while promoting integrity and diversity. This is great to see.
The new Code applies to all premium listed companies for accounting periods beginning on or after 1 January 2019, meaning reporting will be part of the annual reports published in 2020.
So, it’s a perfect time to shine a spotlight on what the FRC had to say in its recent annual review on UK corporate governance, particularly around employee engagement and influencing culture.
In its press release, the FRC states:
- Purpose – many companies are grappling with defining purpose and what an effective culture means with too many substituting slogans or marketing lines for a clear purpose.
- Culture – there is insufficient consideration of the importance of culture and strategy or the views of stakeholders. Companies should be commenting on culture and now explain how they are monitoring and assessing it.
- Employee engagement – the use of engagement surveys was portrayed by many as an effective tool to achieve insight on employee engagement and culture. While these can help, they should not be used in isolation. Companies must be able to demonstrate that the engagement methods used are effective in identifying issues that can be elevated to the board and how this affects company decisions.
In addition, the majority of companies failed to provide any information on their engagement with the wider workforce regarding executive remuneration – one of the big changes in the 2018 Code. Looking ahead, the FRC wants more information on remuneration committee engagement with the workforce, along with the effect of this engagement, helping to understand how workforce pay influences pay policy. Many companies stated that it would be an area they looked further into during 2019.
Making his point strongly, Chief Executive, Sir Jon Thompson said:
“Concentrating on achieving box-ticking compliance, at the expense of effective governance and reporting, is paying lip service to the spirit of the Code and does a disservice to the interests of shareholders and wider stakeholders, including the public.”
In light of this review and its findings, I wonder if companies and governance professionals are considering the vital role communications has in achieving the most effective outcomes, by helping to breathe some life into the new framework?
We can have the most comprehensive Code and the most robust of processes and policies, but if we fail to communicate well, then we fail to engage, positively influence and build a sustainable culture based on foundations of good governance.
Communication is a fundamental building block of strong engagement and culture with a plethora of research out there that proves it. Strong communications that start meaningful conversations are the only way that boards will take decisive steps in promoting the desired culture, to ensure people are clear on company purpose, strategy and values and how these align with what they do day-to-day.
Any failure of a large company has huge effects, wide-reaching across all stakeholders. Placing employees at the heart of everyday business makes sense.
For reporting to be authentic and strong when it comes to culture and employee engagement, this will require a strategic approach that monitors and measures behaviours and engagement. You can only achieve this by implementing a strategic communication plan where two-way dialogue is in place on a regular and consistent basis.
Set up meetings with your communication teams or any external support you may have and start scoping out a strategic plan to connect the board with its employees through consistent, considered and creatively engaging communication that resonates in order to make a real impact.
Inspired? But lacking communication know-how, resource or time?
Give Eximia a call – we provide a fresh external perspective and combine a unique blend of governance expertise and creativity – so we can help you raise the profile of governance within your organisation. We’ll also elevate you and your team as strategic and dynamic governance professionals who go above and beyond box-ticking compliance and who wouldn’t want that?