New Corporate Governance Code – Business in the Community response

In response to today’s publication of the new Corporate Governance Code by the Financial Reporting Council (FRC), Business in Community (BITC) released the following responses to key changes affecting responsible business issues.

Employee voice

Companies will be required to explain how they are engaging with employees to incorporate employee voice into Board decisions.

Stephen Gee, Senior Development and Business Support Manager at Business in the Community, said:

“Employee voice is critical in workforce engagement and leads to many business benefits. Companies will have to be more transparent about how they engage with employees, and how employees' opinions have been factored into decision making.  This is an opportunity to build more transparent, formalised engagement with employees, which can in turn unlock greater productivity, trust and loyalty. Companies should embrace the change as an opportunity to refresh their approach to employee engagement to deliver additional benefits to employees to further improve their experience at work.”

Organisational Culture

Directors will need to establish the company's purpose, strategy and values and the board will need to explain in the annual report how it promotes a culture that is aligned to this.

Stephen Farrant, Sustainability, Innovation and Sectors Director at Business in the Community, said:

“For the first time, companies will be expected to define and focus on their purpose beyond profit. They will need to seriously think about how they embed and integrate purpose and values into strategy and business models and then articulate their approach.There is mounting evidence that businesses that stand for solving societal challenges through their purpose are performing well in terms of market growth, developing more meaningful relationships with customers and clients and retaining and attracting employees.”

Board composition and succession planning

The changes aim to broaden the boards' perceptions of diversity and ensure that appointment and succession planning practices are designed to promote diversity. Changes encourage building diversity in the executive pipeline and reporting on actions taken to increase diversity and inclusion and the outcomes. 

Sabrina Bushe, Head of Workplace Membership at Business in the Community, said:

“Companies will be expected to consider the composition of their board and management pipeline, from a gender, race and social background perspective.  There is increasing visibility on this issue, so companies that do not embrace the shift are less likely to attract top talent.

Diverse senior executive teams are good for business. They can help to reduce group think decisions and sharing the broadest range of different perspectives enables maximum opportunity for creative and innovative solutions. Good succession planning also provides employers with an opportunity to identify business critical roles and to put contingency plans in place to ensure effective business continuity. Employers should also review the diversity of the teams linked to those job functions to ensure diversity in the talent pipeline for the future.

To build the pipeline, employers should ensure that their policies have fair access to training, development and stretch assignments. This will allow talented people within the organisation to develop the skills needed for senior executive and board roles, regardless of background and characteristics.

Stakeholder voice

The code asks boards to describe how they have considered the interests of stakeholders when performing their duties.  In addition the Government has already said that it intends to make it a legal requirement for all companies of a significant size (private as well as public) to provide narrative reporting on how their boards have considered stakeholders interests in financial decisions. 

Stephen Gee, Senior Development and Business Support Manager at Business in the Community, said:

“Investors, civil society and business increasingly recognise the importance of strengthening stakeholder voice at board level.  As well as acknowledging a responsibility towards the society and environment in which they operate, most companies and their boards also recognise that effective engagement with key stakeholders is a key component of long term sustainability, success and trust.

Companies should embrace this as a chance to revisit the business benefits and responsible outcomes of their relationships with stakeholders.  It should encourage companies to look for synergies with stakeholders rather than trade-offs. Boards need to consider whether or not they are getting sufficient information from the right stakeholders to support their decision making.”

Sustainable Development Goals (SDGs) in the code

The consultation asked if there should be more specific reference to the SDGs (or other NGO principles) in the Code

Almost all responses recognised the importance of sustainable development but raised concerns in relation to referencing one set of principles.  The decision was made for the Code’s Guidance to highlight some of the current frameworks and principles, including the SDG’s. The decision on whether to align company strategy to any of these frameworks will be for the board to determine.

Stephen Farrant, Sustainability, Innovation and Sectors Director at Business in the Community, said:

“The SDGs, or “Global Goals” as they are increasingly known as, provide an ambitious, globally recognised framework that brings together the major, shared sustainable development challenges of a generation.  Increasingly, companies will be using the Global Goals as a framework to design, deliver and measure their business activities. 

The Global Goals are fast becoming the common language that businesses are using to communicate their activity around sustainable development and investors are recognising the importance of businesses addressing them.”

Remuneration

In the revised code the remuneration committee’s remit has been expanded to reviewing workforce remuneration and related policies. However, oversight of wider workforce policies and practices has been assigned to the board. 

Catherine Sermon, Interim People Campaign Director at Business in the Community, said:

“It is absolutely right that there is now increased emphasis on employee engagement and employee pay and incentives across all employees, not just those at the highest pay levels.

Companies with a significant proportion of low paid roles must do more to understand the experience of work for lowest paid staff and forge plans to improve the quality and experience of work for those employees. A starting point for this is better collection and reporting of workforce data at different pay levels.”

Media contact

If you would like further information or to interview any of the people quoted here please contact Katherine Howbrook, Head of Media and External Communications, Business in the Community, Tel: 020 7566 8737, Mobile: 07515 119 096, Email: Katherine.howbrook@bitc.org.uk