In the past two years, high-profile cases of corporate failure and scandals such as BHS and Patisserie Valerie, and their disastrous consequences, made the headlines in the UK. There is no doubt that such examples of poor corporate conduct continue to negatively affect business trust and credibility, making strong corporate governance and effective stewardship a central concern for financial professionals and the organisations they work for.
For many years, the investment community has been accused of being too focused on maximising short-term business growth and performance over sustainable and inclusive corporate success to benefit all stakeholders. And the 2008/09 financial crisis proved to be a rude awakening, highlighting the importance of having an effective business culture, strong governance and leadership – observations that are still highly pertinent today.
In 2010, the Financial Reporting Council (FRC) in collaboration with leading UK companies developed and published the Stewardship Code to help address these challenges and enhance the quality of engagement between institutional investors and companies. In turn, this aimed to foster best investment practices and the efficient exercise of governance responsibilities, ultimately creating a stronger link between governance and the investment decision-making process.
This was a pioneering step in shaping the future of the UK’s overall corporate governance framework, and led to the creation of similar sets of principles in as many as 20 countries. The positive impact of the Code to date should not be dismissed.
While profitability is still fundamental to any long-term business strategy, we need to challenge the ever prevailing premise that a company’s best interest primarily lies with profit maximisation. We have to find a more sustainable way to do business, focus on creating long-term value and strengthen accountability to benefit investors, society and help boost sustainable economic growth. In short, it is essential that we rethink how we define and approach organisational purpose.