‘A major shake-up of UK corporate boardrooms is long overdue’
Paul Polman is Co-founder and Chair of IMAGINE, a social venture accelerating business leadership to achieve the Global Goals. He was CEO of Unilever from 2009-2019. He spoke to Business Leader about the future of the UK boardroom.
Business Secretary, Kwasi Kwarteng, has announced the government is consulting on a comprehensive revamp of the UK’s audit and corporate governance regime.
It comes not a moment too soon, as a major shake-up of UK corporate boardrooms is long overdue to reverse the spate of high-profile corporate failures that have dominated the financial headlines, from Thomas Cook, to Carillion and BHS.
The traditional role of boards in fulfilling their fiduciary duties is familiar territory: strategy setting, shareholder engagement, risk management, executive compensation and succession planning. Perfectly understandable preoccupations when only maximising shareholder returns was de rigueur. But the expectations of business have fundamentally shifted, as regulators, investors, employees and consumers now all want to see companies have a purpose beyond profits.
This places even more demands on boards at a time when they are already facing enormous challenges. Whether it’s managing huge technological disruption, adjusting to the new virtual economy, or planning for the aftershocks of the coronavirus crisis, no one can accuse them of having an empty in-tray.
But to borrow from HR’s lexicon, board directors need to embrace ‘lifelong learning’, so that they have the right skills to create value through values. For those that are prepared to step out from behind existing corporate governance codes, there’s the opportunity to enhance what they most prize – business performance and corporate reputation.
Top of the agenda must be ensuring boards are climate competent, given just 7% have this expertise. The risks are obvious. Without serious, deliverable net-zero plans, guided by real insights and knowhow, no company is safe from the flight of capital that is now chasing cleaner, longer-term investments. It’s impossible to imagine an audit committee, for example, being run with comparable financial or accounting illiteracy. So why are so many board directors asleep at the wheel when it comes to climate knowledge? The government’s proposal for an annual corporate ‘Resilience Statement’ to include the risks posed by climate change is a step in the right direction. But we can still be bolder in demanding higher climate competence.
Diversity and inclusion also need to take centre stage in boardroom representation and discussions. We should welcome the progress being made, with the recent news that all-male boards have now been eradicated across Britain’s 350 biggest companies. But there’s still a mountain to climb. Representation of the BAME community remains woeful, as more than a third of FTSE100 firms do not have ethnic minority representation at board level. Similarly, 15% of the world’s population – over 1.3 billion people – is disabled, yet we rarely see this mirrored in boardrooms and management teams. We’re missing a huge opportunity, as companies that reflect the communities in which they operate are naturally far more successful.
Boards also need to play a more proactive role in addressing gross social inequalities, which regrettably have been magnified by COVID-19. Or to put it more simply, we need to stop ignoring the ‘S’ in ESG. For businesses with extended supply chains, this means upholding and promoting human rights, guaranteeing safe working conditions and providing a fair wage. It’s about dignity and respect for all, and any company that falls short deserves to lose their license to operate. My old company, Unilever, is once again burnishing its credentials as a responsible business, by committing to pay a living wage across its supply chain by 2030. Others would do well to follow this example.
Sadly, the spectacular corporate governance disasters we have seen sit alongside a litany of similar egregious cases – Rio Tinto’s destruction of ancient aboriginal caves, McKinsey’s pursuit of clients at any cost, Volkswagen’s emissions scandal, Royal Bank of Scotland’s subprime debacle and Enron’s flirtation with creative accounting – to name only a few.
All of these should serve as enduring cautionary tales of corporate ineptitude and be taught in top business schools. But when the dust finally settles on the government’s consultations, it’s company directors that need to pay closest attention, especially given the tougher penalties being considered.
No one should underestimate the strain business has been under this last year. And it would be disingenuous to ignore the positive role many have played in helping to protect lives and livelihoods in the face of an unprecedented health and economic crisis.
But, if there’s one lesson worth learning from the pandemic, it’s that responsible firms have won greater trust and loyalty. Every board director would do well to remember this undeniable fact, before resisting any regulatory attempt to raise the bar of corporate governance standards.