Civil Society and the Code
Julia Unwin CBE, Chair, Independent Inquiry on the Future of Civil Society writes:
Codes exist to drive high standards of corporate governance. They hold the ring between different interest groups. They balance and reconcile competing priorities. And as the Corporate Governance Code celebrates 25 years, it’s right to look back and understand how well it does this – in a world so transformed from the one in which it was originally drafted. For civil society, the Code really matters. We know that what gets measured (and reported) gets done. The code makes public the good, the bad and the occasionally ugly. It can highlight the progress that has been made in some sectors, for example, on gender equality, even though we all know there is much more still to be done. It sets the bar higher on environmental issues so impact can be demonstrated clearly. Public Reporting allows for comparisons and makes public that which some might understandably wish to hide: to expose consumer detriment and risk, shoddy work practices, massive pay inequality and other issues that matter to business and civil society alike.
For civil society, what happens inside companies really does matter. The role of business in shaping the economy, moulding our working lives, determining the future direction of our towns and cities, is as important to civil society as it is to the companies that are our partners in the great endeavour of creating a future in which everyone can flourish. There is no aspect of company behaviour that does not have an impact on the wider society and economy – and the ways in which trust is built, and eroded, matters too. Trust, goes the cliché, is not given but earned, and every company knows that the trust and engagement of consumers and workers can make or break their future. In the two and a half decades since the Code how well have their interests been served? How successful has the Code been in building trust? And how well has it kept up with expectations?
There is no surprise in saying that trust is a problem for companies and for civil society. This most precious commodity is also the one that requires constant attention, and the 2017 Edelman Survey does not tell a very reassuring story. The 2008 financial crisis damaged trust – the most recent surveys suggest that there is some way to go in improving this situation.
In this the Code plays an important part. Since 1992 the digital revolution has changed not just what we think about business, but how we think too. Organisations that once might have seemed shadowy and remote, now serve a public that fully expects to know about pay levels and safety records, about financing and environmental standards – and at the click of a button too. People who can now see on their laptops the building which houses the headquarters, also expect to understand what goes on inside. The code provides them with ways of doing so – and ensures that expectations about openness and transparency begin to be met.
The Code of Corporate Governance is part of a framework for ensuring that governance gets the attention it deserves. No code on its own can guarantee good behaviour and public trust. It is the behaviour of business that builds trust and confidence, and enables their success. The code provides away to promote excellence in governance. My hope is that the FRC’s revised Code will give civil society the tools with which to understand and participate in encouraging the good behaviour of companies, operating for the long term. That will be a substantial contribution to building public trust.