Will the Hampel committee on corporate governance break new ground in the debate about to whom companies are accountable and for what?
RESPONSIBLE NOT ACCOUNTABLE
Corporate governance should focus on investor relations, with flexibility to avoid stifling entrepreneurship and management initiative, the CBI says in its response to the Hampel Committee’s consultation. Martin Broughton, chief executive of BAT Industries and chairman of the CBI’s Companies Committee said on January 28 that companies have many stakeholders, but only one set of owners. Directors are responsible for managing relations with the former, but are accountable to the latter. Contact CBI on 0171 379 7400
BROADER GOVERNANCE
Effective systems of corporate governance should focus on wealth creation and good management practices such as environmental and social accountability. In its submission to the Hampel Committee, the Association of Chartered Certified Accountants says there is too much emphasis on controls and not enough on creating long term shareholder value. Corporate governance should be defined as “the whole environment in which business and other corporate bodies are directed and controlled in the development of wealth and use of resources.” Contact David Harvey, ACCA, on 0171 396 5975
RESTORE PUBLIC CONFIDENCE
The Centre for Tomorrow’s Company has urged the Hampel Committee to remind directors that their duty in law is to the company, not to a specific set of shareholders at any one time. The Committee should concentrate on creating conditions for sustainable wealth creation; the earlier Cadbury and Greenbury committees were a knee-jerk response to loss of public confidence, the Centre argues. This ‘licence to operate’ should be restored, not by detailed prescriptive control but by adopting an inclusive approach – identifying corporate values and engaging in dialogue.
The Centre has also set up a task force with the Institute of Public Relations to develop new formats for annual reports. Contact Mark Goyder, CTC, on 0171 930 5150
MUCH ADO ABOUT POLITICS
The final report of the Commission on Public Policy and British Business, Promoting Prosperity, has called for management to be more far-sighted in their relations with stakeholders. It recommends an extension to reporting requirements under the Companies Act, with codes of best practice, to encourage firms to state business objectives more fully and report on non-financial measures of performance. Published on January 21 to much political brouhaha, the Commission also:
– criticises the proliferation of small business support schemes and lack of cooperation between small and large firms; and
– calls for £2.2 billion public spending for education, including nursery provision, reduced class sizes and mandatory traineeships for the 16-19 years olds.
The Commission was comprised largely of business executives, including Bob Bauman, chairman of British Aerospace, Sir Christopher Harding, chairman of Legal & General, David Sainsbury, chairman of J Sainsbury and George Simpson, managing director of GEC. Contact Rosaleen Hughes, IPPR, on 0171 470 6100
SATISFYING CUSTOMERS NOT STAFF
The unprecedented organisational changes in British companies during the 1990s have had a dramatic impact on employee attitudes, with big reductions in company identification and employee morale. Data released by the employee survey company, ISR, on December 30 and based on work with 1,800 client companies, shows a fall from 76% in 1990 to 60% in 1996 of those who identify with their company and a fall from 52% to 39% in morale. However scores for employee development and the quality of working relationships have remained broadly unchanged, while those focusing on customers have risen from 44% to 73%. Contact ISR on 0171 287 8109
PARTICIPATION AND PRODUCTIVITY
Profit sharing schemes lead to higher productivity, with positive effects on wage flexibility, employment levels and employee involvement, a report for the European Commission has concluded. Published on January 22, PEPPER II (Promotion of Participation by Employed Persons in Profits and Enterprise Results) follows an earlier report in 1991 and urges member states to exchange information on the effectiveness of different schemes. Contact European Commission on 0171 973 1992
PARTICIPATING IN COUNCILS
Across Europe 350 works councils have now been established and more than half have representatives from the UK, involving over 1,000 individuals on 186 councils. The UK has the highest number of nationally-based company agreements. Released on January 24, the data were collected by the TUC which has produced a handbook to help representatives play an effective part of proceedings. Contact John Healey, TUC, on 0171 636 4030
comment
The closing date for submissions to Sir Ronald Hampel’s Committee on Corporate Governance has prompted the usual protagonists to parade their party lines. Interesting then, that the new Commission on Public Policy and British Business (not in anyone’s pocket, pace Michael Heseltine) has come out in favour of companies having a legal duty to report on a broader range of non-financial indicators. As Community Affairs Briefing has previously argued, companies have a choice: either willingly be more open and accept a measure of accountability to all those with a significant interest in the business – or face unwieldy and inappropriate regulation.
The Greenbury Committee was a classic example of the motto “legislate in haste, repent at leisure”. Reacting to the ‘fat cats’ scandal, it tried to control the symptom, not cure the underlying disease. The real need is to rebuild public and employee confidence, without which the creation of long term sustainable shareholder value will not be held back.
Arguing that corporate governance is only about shareholders, as the CBI appears to, is to miss the point. Ownership does give rights of accountability, but if companies are to continue to thrive, other interests have to be taken into account too. Hampel should scrap the narrow and detailed restrictions in favour of a duty to report on a much broader range of issues, of keen interest to all those on whom business success depends.
The closing date for submissions to Sir Ronald Hampel’s Committee on Corporate Governance has prompted the usual protagonists to parade their party lines.
The closing date for submissions to Sir Ronald Hampel’s Committee on Corporate Governance has prompted the usual protagonists to parade their party lines. Interesting then, that the new Commission on Public Policy and British Business (not in anyone’s pocket, pace Michael Heseltine) has come out in favour of companies having a legal duty to report on a broader range of non-financial indicators. As Community Affairs Briefing has previously argued, companies have a choice: either willingly be more open and accept a measure of accountability to all those with a significant interest in the business – or face unwieldy and inappropriate regulation.
The Greenbury Committee was a classic example of the motto “legislate in haste, repent at leisure”. Reacting to the ‘fat cats’ scandal, it tried to control the symptom, not cure the underlying disease. The real need is to rebuild public and employee confidence, without which the creation of long term sustainable shareholder value will not be held back.
Arguing that corporate governance is only about shareholders, as the CBI appears to, is to miss the point. Ownership does give rights of accountability, but if companies are to continue to thrive, other interests have to be taken into account too. Hampel should scrap the narrow and detailed restrictions in favour of a duty to report on a much broader range of issues, of keen interest to all those on whom business success depends.
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