Setting the agenda through effective corporate governance
This week’s Luminous spotlight shines on corporate governance: the system by which all companies are directed and controlled; and a key contributing factor towards a business’s long-term stability, value creation and healthier stakeholder relationships.
Corporate governance is used to set the agenda and the principles which inform strategic decisions and manage risks, meaning a business without a convincing governance narrative is likely to be perceived as poorly led, negatively impacting investor confidence.
In light of the Corporate Governance Code updates, shifting governance reporting to a more principle-based approach, it is important that these values are authentically integrated and are consistent with business actions.
How to achieve best practice
– Outline the Board’s role in the setting and supporting of strategy.
– Show how the Board sets and monitors the culture of the business.
– Give a sense of the Board’s priorities for the year ahead.
– Use case studies to communicate governance in action and stakeholder engagement.
– Disclose how the Board engages with stakeholders and how these views are taken into consideration when setting strategy.
– Make sure the governance report doesn’t sit in isolation; use it to drive connectivity throughout the report.
– Highlight the Board’s skills (and gaps) in the delivery of the strategy.
– Use the Chairman’s introduction to set an authentic tone, reporting on leadership and effectiveness.
– Evidence the Board’s commitment to diversity in the broadest sense.
The Luminous view
In our experience, businesses struggle when using governance to communicate. Far too many governance reports represent box-ticking and present dead information. Governance reporting must be transparent and it must be consistent with business actions, achievements and failures. Businesses who prioritise transparency and take the steps to practise what they preach not only create a fairer society and workplace, but benefit from greater levels of success.
A number of Luminous’ clients are offering some really exciting governance disclosures within the annual report:
– CLS Holdings creates transparency by tackling issues that may be contentious within the Chairman’s Q&A, offers coherent linkage with risk, discusses the Board’s role in setting culture and provides information that is easily accessible and set out logically. The report also uses Board statements to drive connectivity throughout the report.
– The Weir Group includes a Q&A with a Non-Executive Director reflecting Board issues from a different perspective, offers detailed ‘Inductions in action’ for two newly appointed Board members and a ‘Governance in action’ to contextualise stakeholder engagement. The section also outlines each stakeholder group, their expectations and outcome of that engagement.
– The Unite Group provides some of the most effective governance disclosures in annual reporting. Unite explicitly states ‘How governance supported our strategy’ throughout the year with clear linkage to the business’s strategic objectives and principal risks. The Board activity spread is equally strong with clear disclosure of how Board actions contribute to strategic success.
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