Good governance and HR: a match made in heaven?

No organisation exists in isolation. Externalities influence and shape how organisations operate and whether they do or don’t succeed. Organisations of every type must manage their externalities; be they multinationals, public sector bodies or global charities, there are very many forces which exert pressure on business today. Changing regulation, such as revisions to the corporate governance code, the gender pay gap (and potentially the ethnicity pay gap), and underlying social discontentment with ‘big business’ are shaping decision-making, meaning that boards are increasingly being taken to task. And with socio-political complexity coming over the horizon, the ability of the board to make clear, sound and well-evidenced decisions has risen to the top of the governance agenda. 

Arguably, the factors mentioned above have been emerging for some time, having been exacerbated and brought to a head by the 2008 global financial crash. That global event had a considerable impact on trust in business. Some indicators, such as the Edelman Trust Barometer, highlight that over the last decade trust has barely recovered. Corporate governance scandal after corporate governance scandal illustrates why. Many believe that decision-making is broken at the top of some of the UK’s best-known companies. Short-termism, unfair pay and a lack of employee voice in decisions are just some of the flags that something is wrong. New models that incorporate fairness and transparency are needed.

Change does appear to be on the horizon. In summer this year the influential US business group the Business Roundtable updated its declaration to make clear the need for companies to define a purpose that goes beyond delivering value to shareholders. Instead, what they call for is a ‘fundamental commitment to all…stakeholders’. This includes serving customers, employers, the supply chain, communities and, finally, shareholders. Advocates for this approach are coming forward from across the business landscape; accountants who seek to quantify the true value of organisations (for example with integrated reporting), corporate responsibility and sustainability experts, and now impact or ethical investors, keen to generate sustainable long-term value.

There is an obvious opportunity emerging for the people profession: to shape the discourse of modern organisations and modern governance and enable better management of the workforce to deliver value over the long term. Powerful actors are asking important questions that many boards (who are stuck in the old world) are finding it difficult to answer. Job quality, sustainability, fair pay, supply chain workforce practices, business culture – all are topics of interest to a broad church of business stakeholders. Regulators, investors, customers and consumers, and even employees, are demanding more of business. 

At the CIPD we’ve been exploring what senior leaders in the people profession see as the key opportunities and risks associated with taking a leading role in the culture and governance space. While the opportunity to shape discussion and debate is obvious, there are several challenges that need to be overcome to be able to effectively influence how boards consider people factors in their decision-making:

• Getting good quality data on the workforce to the board. Incorporating people factors into board discussion can be difficult without good quality data and a clear reporting structure for decision-makers to use both insights and narrative to explore issues. This is particularly important for concepts such as culture, where measurement of the concept is difficult. Narrative is key here.
  
  
• Making people and culture top of the list of board priorities. Restructuring the committees at board level to take greater account of people factors is crucial, but the board must still have culture as a key part of its terms of reference. Some organisations are adopting People and Culture committees, with one building a shadow board to advise the board from an employee/workforce perspective. These models are still being trialled but are yielding good results. 
  
  
• Moving from ‘tick box’ to effective disclosure. It’s difficult to move from a ‘tick-box approach’ to people measures and reporting, even though the Financial Reporting Council calls for more holisitic data sets to be used. This is because proxy firms (who advise and vote on behalf of shareholders) discount the value of data. This is similar to an issue that was picked up in the CIPD’s research with ethical investors who found the quality of disclosure preventing meaningful engagement with firms on people issues. 

Over the coming year we are continuing our work with senior leaders to explore how the people profession can help to shape conversations around people and culture at the top of organisations. There is clear appetite in the profession to lead on these issues – now appears to be the time to shed the old models of value creation and incorporate new, more sustainable and purposeful concepts into how, and for whom, the biggest and most powerful actors in society are led and run.