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Rebuilding trust, going beyond compliance

by Simon Lowe on November 15, 2016

Compliance with the UK corporate governance code has improved but Simon Lowe argues that compliance is no longer sufficient.

Image: Shutterstock

Image: Shutterstock
Image: Shutterstock

If I had a pound for every time I hear the word “trust” being mentioned in conversations, in news reports, in corporate statements or by politicians these days, I would be a very rich man.

This explosion reflects what many have been seeing in society as reflected in both the Brexit and US presidential election outcomes. Namely, when individuals, institutions or organisations become too distant from those they serve, trust—the unspoken licence that has enabled them to operate—fractures.

As a result society reforms around cliques (be they gender, ethnic, religious, class or locality), political stability is shattered, and corporates gradually lose their value as their brand tarnishes.

The past few years have seen myriad examples from the corporate and political worlds that have eaten away at the intuitive presumption of trust, the foundation stone of society.

To many, the concept of trust (and its loss) is an abstract idea that is to be wrestled with by our leaders, but I fear we are all guilty of  acting like ostriches…

To many, the concept of trust (and its loss) is an abstract idea that is to be wrestled with by our leaders, but I fear we are all guilty of  acting like ostriches, burying our heads in the sand rather than acknowledging what is happening in society.

Last week, I attended the London CBI council dinner and listened to a presentation about the changing face of the workforce and how recruitment now needs to offer flexible contracts to all, and particularly to those in senior roles in organisations.

Very quickly the word trust was mentioned, in the context of it being a barrier to change and prosperity. The debate then escalated into one about society, and whether for society to function trust has to be earned, or whether society is based on the presumption of trust, which is to be lost at its peril.

In the context of that evening’s debate, should an employee have to work for a period to earn the right to be trusted? Or, should a company trust the prospective employee and offer flexible contracts from day one—the latter having the potential of providing much greater reward for both parties, but carrying a far greater risk of failure?

More than compliance

The debate got me thinking about the corporate world and the current state of  corporate governance among the UK’s largest companies. Although, as we found in our 15th FTSE 350 Corporate Governance Review, levels of compliance reached their highest ever (62% fully in compliance), perhaps in this age of scepticism and mistrust, compliance is no longer sufficient.

And here I feel we get to the heart of the issues facing us. A closer look at our findings reveals that the FTSE 350 as a whole is some way short of fully embracing the principles, with many often choosing to hide behind the pure letter of compliance.

If these companies don’t trust society enough to give more frank insights into their business, then why should they be trusted?

For example: only 20% of companies give any meaningful insight to the company’s culture and how it is promoted and embedded in the company, and only 15% give a similar level of insight into the considerations they have given to planning for future succession within the business.

So, what does that say to an already cynical public—be they employees, suppliers or customers, many of whom are probably unwitting shareholders—about these, our largest companies?

If these companies don’t trust society enough to give more frank insights into their business, then why should they be trusted? In the debate about whether trust can be presumed or first needs to be earned in order to have the right to operate, I suspect the presumed option will come off worse.

Prescriptions

In the early part of this decade, the UK’s financial regulator was successful in defending our principles-based approach to governance, in the face of a strong EU inclination towards a more prescriptive US approach. How ironic it would be if in the end it is the UK government that has to resort to prescription, to bring about better governance practice.

So, now is the time for a little honesty and soul-searching within the boards of our largest companies: are they truly embracing the principles of good governance? Or are they simply paying lip service to some of the more difficult aspects of the Code, always waiting to see what others do first?

With Theresa May setting clear expectations in this area, now is the time for companies to show a little more leadership and recognise that society deserves to be treated with more respect. It is time for them to share more insights into their business and be more transparent about their impact on all stakeholders—not just their investor base.

Without this, it may not be long before we see the government stepping in to put such matters on more of a statutory footing.

Simon Lowe, partner and chairman of the Governance Institute, Grant Thornton UK LLP.

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