At a macro level, there is a growing sense of connection between society, business and government, with more responsibility and expectation placed on companies. This is increasing the need for transparency and trust between business and wider stakeholders and intensifying the spotlight on the value companies create for stakeholders beyond profits.
Our UK counterparts have released their 19th annual Corporate Governance Review, in which they assess the reporting of applied governance practices, as well as how companies have shaped business models, cultures and decision-making structures to drive results over a sustained period.
This report provides salient insights for Boards in Australia, as despite having a different Code in place that we report against, the key themes resonate with what we’re seeing here – purpose, culture, emerging risk management, stakeholder engagement, board effectiveness, remuneration, ESG, diversity and succession planning. It is also a strong indicator of what companies should be focusing on in the coming year.
- 6% of companies measure the impact of their corporate purpose
- 25% of companies have had their chair on the board for more than nine years
- 51% of companies give no information about sources they use to assess culture
- 51% of companies provide good or detailed explanations of board evaluation, but only 46% give sufficient detail on outcomes
- A quarter of companies anticipated the risk of a major event like COVID 19
- 89% of companies outline what they consider their emerging risks, but only 30% outline how they mitigate these risks
- 27% of companies say environment risks are a principal threat while only 10% use climate change or other environmental metrics in executive remuneration
- 4 out of 9 KPI’s disclosed by companies are non-financial
Key themes from the report
Purpose beyond profit
There is much pressure on companies to identify their “purpose beyond profit”. In the US, the CEOs’ association, Business Roundtable released a statement in 2019 on the purpose of a corporation, committing its members to serve all of their stakeholders. In Australia, Adhering to an ethical code comes the idea that a profession has a purpose beyond profit. This purpose, which includes acting in the public interest, is essential for a profession to maintain its social licence to operate.
Defining purpose not only acts as a guide for stakeholders but provides a framework for how decisions will be taken to create and protect value over the longer term. Having a clearly defined corporate purpose is intended to shape long-term thinking, which in turn helps inform the use of capitals and some of the principal and emerging risks to the business and its culture.
The report indicates that many statements are more akin to strategic straplines; these show intent but include little detail on how companies embed purpose to provide guidance and decision making clarity. Just 6% of companies measure progress against their corporate purpose; even fewer link delivery against this purpose to executive remuneration.
Questions to ask
- Is our purpose clearly defined and does it provide decision-making clarity?
- Are we committed to reviewing our purpose at regular intervals to ensure that it continues to drive the right culture, values, and strategic priorities?
- Is there a clear link from purpose to strategy to values to key performance indicators to remuneration?
- Have we developed tangible measures for our purpose?
- What is the impact of our purpose on stakeholders? Consider frameworks such as the UN’s Sustainable Development Goals (SDGs)
Preparing for 2020 and 2021 year-ends
This year’s research reveals encouraging trends and opportunities for engagement, but there have also been new and emerging challenges – including the COVID-19 pandemic, an economic recession and wider public considerations. In preparing for 2020 and 2021 year-end reporting periods, businesses need to plan and consider how they integrate output in order to simplify, demonstrate accountability and transparency in decision-making and outcomes, while providing sufficient information around the leadership and value creation ‘USPs’.