‘Good’ business, as opposed to ‘good business’, is nothing new. What has brought the subject of boardroom standards to the fore is the dramatic increase in the power that business has to shape the world. This shift in power is in some ways very exciting, and in other ways the subject of concern.
To ensure that this power is not abused, companies must embrace, not the letter, but the spirit of corporate social responsibility. ‘Good’ CSR practice does not exist in a vacuum, it needs to be an integral part of corporate governance and ethics.
And ethics is the common denominator that touches on all the areas of the government’s wide-ranging reform package to improve corporate governance – auditing, investor relations and board structure. The changes recommended by Derek Higgs to the Combined Code centre on a greater proportion of independent, better-informed individuals on the board.
The centrepiece of the Higgs review is the role of non-executives, who have an important role in gauging whether company practices can withstand the increasing public scrutiny of corporate social behaviour. They are in a unique position to contribute knowledge and experience of good practice as well as provide challenge to existing practices.
However, some institutional investors believe that the Higgs report does not go far enough in addressing the issue of social responsibility. Submissions to the report suggested the creation of a CSR committee to ensure the discussion of CSR at board level.
Yet by placing ‘CSR’ as a separate item on the board agenda, one might question whether the board really understands the issue – any more than even the most trusted company would have ‘ethics’ as a separate item for board discussion. This should be a way of thinking and behaving, not a separate programme or campaign. These matters should be factored into all proposals and discussions. In the same vein that non-execs and execs identify and assess risk, so they need to be knowledgeable and informed on this vital issue. Indeed, the Company Law white paper recognises this in its proposals on the duties of directors.
Recommendations from the Higgs report aim to clarify directors’ duties and encourage greater active engagement by shareholders. The recommendations extend workplace good practice and will contribute to improving board governance. These changes should extend the experience of the board to consider wider themes and the long-term reputation of a company, which will ultimately help secure its success.
There is scope for improvement regarding all aspects of corporate governance, including CSR. There is still a need to spread awareness and best practice; it needs to be a part of the company’s culture not a ‘box-ticking’ approach. We need to ensure that we clarify the role of the board and not add complexity. ‘Good’ business will always be ‘good business’.
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