Business Accountability

March 01, 2005

The new chair of BITC argues the great businesses of the 21st century will not only be the most responsible and transparent, but also the most accountable.

Corporate accountability and responsibility go hand in hand and are critical to how business must now operate. As the newly appointed chair of Business in the Community, I firmly believe that companies do not succeed by concentrating on the bottom line alone. Growth and investment are important, but as the world’s most respected businesses all know, it’s about so much more. Businesses must operate in a transparent and open way, and be accountable to their stakeholders. This is critical to retaining trust and confidence in the capital markets. So what should an organisation striving to follow best practice be focusing on?

Dialogue with key stakeholders

Just knowing who your stakeholders are isn’t enough. To engage properly with stakeholders requires commitment from the company’s board of directors, along with a long-term approach and a vision of where you want to be as an organisation. It is important to ask stakeholders to set out their agenda and respond to their concerns. Maintaining an ongoing dialogue is imperative to ensure that stakeholders understand how an organisation came to make a particular decision.

Corporate governance

In the 1980s and early 1990s, corporate governance was of little concern to many organisations. I am pleased that there is now a greater focus on this important area.

The Financial Reporting Council’s revised Combined Code on corporate governance

ecommends that a company’s board should “undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors”.

The chairman must act on the results of this evaluation by recognising the strengths and weaknesses of the board and, where appropriate, propose new members or seek resignation of directors. This is about holding the board accountable and ensuring that they have the ‘right’ skills for the job. The Code also recommends that, with the exception of smaller companies, at least half of the board, excluding the chairman, should comprise of non-executive directors whom the board determines to be independent. This means that no individual or small group of individuals can dominate the board’s decision-making.

Operating Financial Reviews

From 2006, Operating and Financial Reviews (OFRs) will be mandatory for all UK listed companies. OFRs should reflect the key issues discussed by the board during the year to ensure there are no sudden surprises for stakeholders such as investors and analysts. Organisations may wish to use the current year to test their systems ahead of reporting publicly from 2006. This will allow them to set their own pace and integrate any necessary changes at their own speed.

Financial reporting

Of course the accounting profession has a role to play in ensuring that financial reporting is open, transparent and rigorous. What firms such as KPMG do has to be understandable and comprehensible to a wide audience. The information we provide to the investment community and others should be useful and powerful. I am proud that KPMG was the first UK accounting firm to produce a PLC-standard annual report. In February 2005, KPMG International also published a transparency report outlining our governance, quality control and financial arrangements.

The challenge is how to embrace change in the right way. The promise of new markets and new efficiencies must not compromise responsibility to their people, their shareholders and other stakeholders. The great businesses of the century will not only be the most responsible and transparent businesses: profitable and successful, but also the most most accountable.

Corporate Citizenship Briefing, issue no: 80 – March, 2005

Mike Rake is chairman of KPMG International, senior partner of KPMG LLP and chair of Business in the Community.

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