Archives For governance

ACCA’s Accounting for the future conference kicked off this morning with a panel debate on how boards and companies need to consider the needs of their stakeholders. Chairing the session was Professor Andrew Chambers and he was joined by Paul Moxey, ACCA, Tony Hewitt, Imperial College Business School and Catherine Howarth, Fair Pensions. This was an interesting debate watched by over 650 individuals. Key themes included defining and prioritising various stakeholders, identifying where the responsibility lies within organisations when it comes to engaging with stakeholders and how regulation such as corporate governance can have an impact. Detailed below are some of the questions that came in from attendees and the responses from ACCA expert Paul Moxey:

I agree with the enlightened approach. Does the panel think that an approach would be to have a representative stakeholder from various groups to be present on the board in a non-exec director style capacity?

Having stakeholder representatives on boards is an interesting idea but it does not sit comfortably with the legal situation regarding directors in a number of jurisdictions including the UK. In the UK we have unitary boards and, legally, all directors should act in the interests of the company and all directors have an equal responsibility to do so. So, in law, having a director represent the interests of any particular stakeholder could be problematic. In practice, though, it is not uncommon for a director to have a particular affiliation, e.g. they are a member of a family with a large block of shares, they have been appointed by an investor. In theory such directors must put any personal or specific stakeholder interest as secondary to the company interest. The practice may well be rather different. Nevertheless the idea does seem worth exploring.

I note that neither the bank nor the government is mentioned as stakeholders yet I believe they are important?

Clearly banks potentially are important stakeholders as are societies whom governments represent. From a practical point of view, a government can be an important and influential stakeholder for many large companies e.g. as was the case with the US Government and BP after Deepwater Horizon.

How do you unify a multi diverse group of people with different values who happen to hold shares to effect involvement of shareholders in corporate governance?

The answer of course is that you cannot unify all of them. You can hope to unify some of them which is why the effort has gone into the Stewardship Code in the UK. Bodies such as the Asian Corporate Governance Association and International Corporate Governance Network also play an important role in education and encouraging investors to engage more with companies.

Should it be mandatory for Trade Unions have a representative on the board?

The answer probably depends upon your political point of view. In Germany, many boards have employee representatives who in practice are appointed by unions. I have heard very mixed views about the value of this. The danger of course with trade union representatives is that they pursue a political agenda rather than looking at the best interests of the company and its workforce.

Even footballers are fined if they do something which is shown to be contrary to accepted practice. Would directors become more accountable financially and morally if they were fined rather than the shareholders picking up the bill?

I think it is very likely that the propensity for the US authorities to go after high profile corporate wrong doers will have had a salutary effect on senior executives and board members generally. So I think the answer is yes – they would be more accountable. The danger though would be that good people may not want to become directors, this would be OK if other good people came forward. My concern though is that powerful people in a large organisation might choose not to become a director but still manage to have a lot of practical control over what a company does. It would be unwise for anyone to become a director in such a case but in practice many directors would not know what is going on until it was too late.

What about requiring PLCs to hold an Interim General Meeting within one month of release of half-yearly results? Shareholders can ask the Board “any surprises so far or expected”? A good chance to align the thoughts of boards and shareholders.

A nice idea but large shareholders will have access to boards anyway. They prefer one to one meetings to the General Meeting. This is why AGMs are usually very sterile affairs. The situation might be different if small shareholders could get more involved.

There seems to be not enough inter-face and monitoring of the Board with the day to day management. What steps can be taken to affect this?

This problem has been with us for a very long time and successive changes to company law or governance codes does not seem to help. Something is needed to make directors more accountable. Better engagement with shareholders will help but is not a complete solution. Some regulatory and supervisory change may be needed but unfortunately regulation usually has unintended consequences.

What possible challenges are there in achieving good corporate governance in intergovernmental organisations like OPEC?

We are still learning how to make governance work in listed companies in the private sector. The essential problem is how stakeholders can hold boards to account and how can boards hold management to account. The actors involved, and their personal agendas and incentives, are very different in intergovernmental organisations but the underlying problems are the same.

Bankers used to be regarded as safe, respectable, honest individuals. Now they are viewed as reckless, self-interest and dishonest. Is there a danger that accountants, because they didn’t highlight the high leverage of the banks, could be besmirched?

There is a danger but it has not happened except to a very limited extent. I think that what went wrong with banks and the financial system was so complex that very few people understand what happened and why. The media and governments focussed on easy blame targets such as so called greedy bankers, ignorant or supine non-executive directors and absentee shareholders. The role of accountants and auditors is so complicated that few people understand how they helped or hindered.

By James Bonner, independent sustainability consultant

Engaging with, and accounting for, wider stakeholders - a process of understanding, taking into account, and reacting to the needs and preferences of groups in in society who might affect, or be affected by, organisations – is an activity that many companies have integrated into their business strategy.

Implementing methods and systems to understand the needs of both internal and external stakeholder groups to an organisation, and those with financial and non-financial interests, can have significant benefits. Managing and developing positive relationships with shareholders, employees, customers and suppliers can contribute to and improve the productivity, value and sales of an organisation. Additionally, understanding and co-operating with the needs and wishes of wider stakeholders such as the government, local communities and non-governmental organisations (NGOs) can enhance the reputation of an organisation’s brand, reduce the risk of being targeted by external pressure groups, prepare for changes in regulations and legislation, and, fundamentally, improve the long term sustainability of a company.

Corporate governance frameworks and practices are developed by organisations in an attempt to ensure that their management and boards incorporate and balance the different needs and perspectives of shareholder groups, and their interests, into decision making and business strategy. It is apparent that there will be different, and sometimes contradictory, perspectives and priorities on certain issues between various groups (e.g. shareholders and management may have different perspectives whether to expand a business, or focus on short-term profits), or, in fact, within certain stakeholder groups (e.g. an animal welfare NGO may have different, or conflicting, priorities/perspectives to a human welfare NGO with regards to a topic like animal testing of pharmaceuticals). Managing these differences and conflicts is a significant part of the corporate governance process.

The following table is an introduction to various stakeholder groups that are relevant to many organisations, their typical overarching areas of interest, and some areas where they might not entirely agree, or indeed, conflict. The list of stakeholders, their interests, and example priority differences/conflicts provided here are not exhaustive or complete- but serve to introduce/stimulate issues around this topic.

* While not a ‘group of people’, the natural environment can, nonetheless, be considered as an important stakeholder, who can significantly affect/be affected by, an organisation.

This blog post intends to primarily support ACCA’s Accounting for the future session ‘Thinking Alike: getting boards in tune with their stakeholders’ on Monday 8 October by introducing some of the perspectives of different stakeholders on the issues that organisations and companies might impact and depend upon- an issue which will be discussed in greater detail in the session. Additionally, a number of other presentations during the conference relate to the themes covered in this blog post:

8 October
09:30-10:30 Thinking alike: getting boards in tune with their stakeholders
9 October
12:30-13:30 Inclusive and integrated – the future role of the CFO
10 October
15:00-16:00 Practical workshop: active ownership

Further information:
While with a global level focus, and stakeholder engagement in intergovernmental processes, Stakeholder Forum are, nonetheless, a good group to follow to understand the perspectives of wider stakeholder groups.
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