The release of the 2018 UK Corporate Governance Code by the Financial Reporting Council further elevates the image and standing of corporate culture. After extensive consultation, the new code places emphasis on businesses building trust by forging strong relationships with key stakeholders. It calls for companies to establish “a corporate culture that is aligned with the company purpose, business strategy, promotes integrity and values diversity”.
The council also wishes to see clear and meaningful reporting and emphasises that investors and proxy advisors must assess explanations carefully and not take a tick-box approach. There is a new provision to enable greater board engagement with the workforce to understand their views with the code asking boards to describe how they have considered the interests of stakeholders when performing their duty under Section 172 of the 2006 Companies Act.
There is also a focus on succession and diversity. The FRC wants to ensure boards have the right mix of skills and experience, constructive challenge and to promote diversity, the new code emphasises the need to “refresh boards” and undertake succession planning. Other factors to consider are the length of term that chairs remain in post beyond nine years.
Organisations are also asked to address public concern over executive remuneration, with the new code underlining that remuneration committees should take into account workforce pay and related policies when setting director remuneration.
Sir Winfried Bischoff, chairman, FRC, reckons corporate governance in the UK is globally respected and is a framework trusted by investors when deciding where to allocate capital. “To make sure the UK moves with the times, the new code considers economic and social issues and will help to guide the long-term success of UK businesses,” he says. In its “shorter, sharper” form and, with its overarching theme of trust, he adds, the code is “paramount in promoting transparency and integrity in business for society as a whole”.
When it comes to culture, boards are asked to create one which aligns company values with strategy and to assess how they preserve value over the long-term.
Rialto has been banging the corporate culture drum for a long time. The FRC has undeniably helped it make the transition from something that was seen as a HR-nice-to-have to being directly linked to business success when it said in 2016 that corporate culture protects and generates value in the UK economy.
It is also spot on in its latest approach by telling businesses to align culture with its purpose and business strategy. This means not only having company values but ensuring they guide the actions and behaviours of every employee and leader. Culture can work like a magic elixir, running through a company not just correcting ills but enabling and helping to facilitate so many other things such as innovation and transformation.
“If you build it, they will come” is a much-quoted line from the sports film, Field of Dreams. Similarly, if you manage to build the right culture as a leader in your organisation, success will undoubtedly follow.