Discussion The Wates Principles: can more transparency lead to greater trust?

by Scarlett Brown _______11th December 2018
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With the Wates Corporate Governance Principles published this week, we now need to ask what impact we can expect them to have? And are we asking too much of a reporting requirement to change the face of business?

“I believe that good business, well done, is a force for good in society.” _______ James Wates

So reads the opening line of the Wates Corporate Governance Principles, published yesterday. The similarities to Tomorrow’s Company’s mission is not an accident – their author, James Wates, is also our Chair. He believes, as we do, that good business can be a force for good in society, and that good governance is a cornerstone to that.

The Wates Principles were designed as a way to ensure there was an appropriate framework available for private companies when, from January, they will be required to report on their governance arrangements. While many private companies follow other codes, the Principles are intended to be more flexible and appropriate for non-listed companies. This has certainly been achieved: they give a high level and purpose-driven view on how businesses should be run. The pyramid also shows how aspects of good governance intersect: businesses should have a ‘north star’ (their Purpose and Leadership); supported by characteristics of governance (Board Composition and Director Responsibilities); and this should rest on a bedrock of specific governance matters: (Opportunity and Risk, Remuneration, and Shareholder Relationships and Engagement).

It would be easy to argue that this is not covering new ground – many businesses already follow these principles. The question now rests in whether the Principles and the reporting requirement will have any impact on how businesses are run.

The Principles, much like the new Code, have the potential to encourage change, but only if they are treated as an opportunity to do so. They outline aspects of well-run business that have been at the heart of Tomorrow’s Company view for a long time and are starting to get traction: values, culture, purpose, accountability and long-term sustainable value creation. They also place human capital at the heart of the value of a business. As with the changes to the UK Corporate Governance Code, this represents a shift in what we are asking directors to do and is an opportunities to do governance, and business, differently.

After all the work put in, the worst outcome we might see would be indifference – treating it just as a reporting requirement with no impetus on businesses to evaluate the way they operate. It always pays to be optimistic, but there are still issues with how many companies report against the principles of the Code. We still see a tendency towards a box ticking and compliance mentality. Even outside governance, we are yet to see if and how gender pay reporting, modern slavery or longer term viability statements will have the impact they intended on encouraging business to behave better.

Are we expecting too much from governance and reporting?

While good governance is a vital part of good business, principles, codes and reporting can only go so far to prevent bad practice. One need only look at some of the most recent corporate failings to see that it is perfectly possible to have transparent annual reporting and also have bad business, and neither governance or reporting can be held as a panacea for business evils.

Somewhere in the last few years of governance reform we seem to have forgotten this. When Theresa May promised to address the lack of trust in business and ensure that BHS never happened twice, and then followed with corporate governance reform and reporting requirements, in some ways she set governance up for a fall. What followed was more reporting: a section 172 reporting requirement (where she had initially suggested employees on boards), pay ratio reporting to address executive pay, and the governance for private companies reporting, of which the Wates Principles is a key part.

There is of course only so much we can do to encourage businesses and boards to move away from a compliance mentality. But we do have an opportunity, with these codes and principles, to do so. Now to take this forward, we need to consider how transparency and trust really are connected, and why, in an age of more reporting than ever, businesses are struggling with both.

 

Tomorrow’s Company are launching a new inquiry into the relationship between Truth, Trust and Transparency. To get involved contact scarlett@tomorrowscompany.com

@ScarlettEBrown

Cover photo by Photo by Julien Moreau on Unsplash

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