As directors we are the most important players in how business is conducted, and we are role models for the cultures that we support in our companies.
However, we must also admit that the system has failed, as many directors just went along, turning a blind eye to the failed system and conforming to it instead.
Good results were traded for the abuse of powers entrusted in directors. This manifested itself in many ways: ethical misbehaviour, corruption, bad governance, questionable business models and remuneration schemes, as well as irresponsible relations to workers, suppliers, the environment, tax authorities and society at large.
Since society perceives us in a collective way, we as directors are held accountable for past failures even beyond our individual powers. Today, society expects new ways of doing business and governing companies.
Attempts to fix the system
In order to rebuild trust in the industry at large and in the profession of being a director, directors and EU institutions tried to fix the system with more regulations, codes and policies. The outcome has been more legislation and soft laws. We have more transparency, reporting and checks and balances. A lot of power has moved from directors to shareholders and regulators.
All this has resulted in boards that are less empowered but more compliant. But transparency and compliance with regulation does not stimulate responsible board behaviour—rather, it gives boards the feeling of being on the safe side, while focusing less on strategic issues.
Regulations and reporting with the goal of building trust in directors are targeting investors and “the knowledgeable community”, not members of the society at large.
The media plays a special and important role in shaping the general perception of the work done at the level of directors. If complex issues are simplified into 140-character tweets or sensational reporting, serious work at board level can easily be misinterpreted as untrustworthy behaviour by the general public.
Many directors and CEOs avoid the media spotlight, since they perceive the risk of reputational loss in such circumstances to be too great. But not being present in the media has become a luxury of its own, even at the cost of paying for advertisements from company funds. Indeed, society expects CEOs to be engaged and present as leaders in media, not to remain invisible.
Out with short-termism
I believe there is a big opportunity for the systematic redefinition of company success that goes beyond financial results. Short-termism must be traded for long-term sustainability. Business must take into account environmental, societal and governance issues.
Values, ethical decision-making and stakeholder inclusiveness must be embodied in strategy; and only business models that add value and solve problems for humanity should be considered.
Changes in business need to be followed up by evolution in governance. Among the many initiatives taken to change how business is governed, I would like to point out the King IV Report—a report I find interesting beyond present governance codes.
The report is inspiring, because its fundamental philosophy puts in focus ethical consciousness and an holistic approach to governing companies by integrated thinking. It is also about stakeholders’ inclusiveness, and looking at companies as corporate “citizens” that are integral parts of society.
In the service of humanity
Going back to building and maintaining trust, communication is essential. As directors we need to follow new developments and be able to explain to society how artificial intelligence and other enormous technological and scientific advancement in business will be used in the service of humanity, and how all these will influence people’s lives.
CEOs carry a responsibility to communicate even beyond company reporting, and speak up on the broader issues of society in accordance with their values. People fear for their jobs, pensions, civil rights, natural resources and environment, but lack the feeling of leadership.
The Edelman Trust barometer shows that in many countries, governments also failed to be trusted.
There is another sort of short-termism that influences business. The political system has a built-in interest in being re-elected.
If governments want to gain trust and support business, they need to put in place long-term sustainable politics that goes beyond a four-year mandate.
Irena Prijović is chair of the European Confederation of Directors’ Associations (ecoDa), a not-for-profit association which represents approximately 55,000 board directors from across the EU.