Good corporate governance is about enabling businesses to make informed decisions that facilitate long-term sustainable growth. Now the measures are in place to incentivise organisations to move in this direction. And the most enlightened ones are already there.
The Financial Reporting Council’s new corporate governance code for listed firms, launched in January, and the recently published Wates principles for private companies, each promote the rights of wider stakeholders, employees and society alongside shareholders.
Meanwhile, B2C and B2B consumer-spending decisions are increasingly influenced by whether a vendor has ethical, transparent business practices and a desire to achieve a purpose as well as a profit. This is supported by investors who are increasingly studying businesses’ approaches to environmental, social and governance criteria.
Though modern housing associations are profit-driven organisations, they operate on a not-for-dividend basis and with a strong social purpose. Having worked in the private sector before my current role, I’ve learnt three key lessons about best practice corporate governance in the industry that apply to British business.
1. Decisions framed by a mission
Regulatory change means shareholders no longer have absolute primacy. Maximising profit and protecting shareholder interests, while both essential, can’t be an organisation’s sole mission. This goal should be visionary and become the prism through which a board evaluates every decision.
As a housing association, the concept of shareholder relations and interests is very different than they are in the corporate world. Yet this doesn’t automatically mean organisations in our sector operate with a social purpose – that must be decided by the business itself. At Aster, we are passionate about our vision, which is that everyone should have a home. It’s what guides us and what we do as an organisation. Our corporate governance is crucial in ensuring we stay true to this.
This approach shapes our every move by helping us evaluate risk – ensuring we protect the assets that are our customers’ homes – and assess opportunities for growth by creating a profit we can reinvest into delivering more quality homes and good services.
It’s no different to any business with a customer-centric goal and so doesn’t mean sacrificing commercial success.
Inevitably, in the private sector, creating a social benefit won’t be the sole focus of a mission, as in our case. But it should be as it’s clear that giving credence to social value is the direction of travel. Note the Bank of England chief economist, Andy Haldane, calling for more recognition of all stakeholders – shareholders, customers, clients, creditors workers and wider society – last September.
2. From what you can’t do to what you should do
Perhaps the most significant impact of the FRC’s new code and Wates is that they turn governance from something that was just about risk and compliance into something more proactive and strategic. This should help organisations face into the challenges posed by the modern values and habits of employees and customers and so becoming something that can enable growth.
Stakeholder engagement is a core element of both new codes and part of the day-to-day operational and executive functions at any well-run housing association. Customer and employee involvement in consultative decision making and in helping shape our long term strategic direction helps build advocacy and buy-in with both groups. This helps us turn decisions into action quicker and more effectively, expediting our growth strategy.
Should we end up in a world where employee representation on boards becomes compulsory, those organisations that have already incorporated workforce engagement at least somewhere within the operational decision-making structure will be much better equipped.
3. Out with the old
The composition and functions of non-executive directors needs to shift in line with governance. It used to be about background – an ex-CEO for chair, a former FD to oversee audit. But a more proactive approach to governance demands people with more specialist skills sets to sit around the table. Look for executive skills in your non-executives.
For us, this has meant people with expertise in areas like safeguarding. But also, individuals that can help develop future-gazing strategies or with exceptional emotional intelligence. We’ve looked for people to provide challenge to our culture and ingrained ways of thinking and so draw talent from the private sector. External advisers have played a role in ensuring we don’t become too insular.
Naturally, the socio-economic, racial and gender backgrounds of your executives and non-executives should better reflect society. And decision making around remuneration should be made transparent, ideally showing it to be well-reasoned and fair.
Dawn Fowler-Stevens is group growth and assurance director at Aster Group, which manages and owns more than 30,000 homes across the south of England.
Image credit: IDuke/Wikimedia Commons (creative commons)