16th London Global Convention on Corporate Governance and Sustainability
Theme: Boards Evolving Role in an Uncertain Global Economy
Companies need to work for all and not just the few*
Prof. Colin Coulson-Thomas+
Responding to challenges and opportunities in the global economy and helping people to cope with them is creating an historic opportunity for businesses, government, public bodies and regulators to work together to ensure the results of growth are more widely shared. We could be on the threshold of a new era of cooperation and collaborative capitalism.
The contemporary company is a network of relationships with stakeholders. Among these stakeholders, customers, employees, suppliers and business partners can be as important as shareholders if not more important for a company’s growth and development..
While in company law the interests of shareholders have been paramount, in practice directors have to achieve a balance between the interests of all stakeholders. If not satisfied, each group of stakeholders might take decisions that could harm the future prospects of a company.
While some investors might sell their shares if not satisfied with dividend levels, customers who feel short changed and key employees who are dissatisfied may look elsewhere. Important suppliers and business partners who are not fairly treated might give more priority to other relationships, or even walk away.
A board cannot give so much away that it does not retain sufficient resources for building the capabilities to ensure a company’s own survival and development. Relationships with stakeholders need to be mutually beneficial and based on trust if they are to endure in uncertain times.
Uncertainty can be unsettling, but collaborative responses to uncertainty can create closer and more strategic relationships with customers, suppliers and business partners. Unfortunately, a combination of corporate governance scandals, allegations of excessive executive pay and cases of inadequate funding of pension obligations has resulted in a degree of public cynicism and distrust.
With certain stakeholders some directors and boards need to take urgent steps to restore and sustain confidence, credibility and trust. Traditional responsibilities to ensure solvency and promote the best interests of a company remain. Value still needs to be created, but many boards need to devote more attention to its allocation in order to benefit more stakeholders and a wider society.
Efficiency, economy, innovation and productivity in value creation are still vital for sustainability. The bigger the cake the more there is to allocate, including to the company itself to build and sustain its continuing capability to create future value.
Revisions of company law have recognised the wider responsibilities of directors. In the UK’s Companies Act, when taking decisions they are now expected to have regard to the interests of stakeholders other than shareholders. In India, companies that meet stated criteria are expected to devote 2% of net profit to socially responsible activities.
Wider society faces many of the challenges faced by boards, including sustainability and coping with uncertainty. Given technological developments, of particular concern to many people and governments is the question of where future jobs will come from. Those who are not employed by others and who do not become self-employed and entrepreneurs will need activities to occupy them. They will also require some form of income or other financial support to cover the basics of life.
At the 2016 Conservative Party Conference, a theme of UK Prime Minister Theresa May’s speech and a challenge to her ministerial team was creating an economy that works for all and not just a few. Given the common challenges facing them, other governments may share this ambition.
Our challenge as directors is increasingly to build companies that work for all and not just a few.
If we can restore trust and build confidence and credibility, we have a once in a generation opportunity for collaboration, cooperation and partnerships with other enterprises, governments, legislators, regulators, public bodies and other stakeholders. We can work together to create and build economies of companies that benefit wider society and future generations.
*These concluding comments by Prof. Colin Coulson-Thomas were made on Wednesday 19th October, 2016 at the end of Plenary Session X to summarise some of the main issues that emerged at the international conference of the 16th London Global Convention on Corporate Governance and Sustainability which was held at the Millennium Hotel, 44 Grosvenor Square, London W1K 2HP, UK. The convention was organised by the Institute of Directors, India
+Prof. Colin Coulson-Thomas, an experienced director and board advisor, leads the International Governance Initiative of the Order of St Lazarus, is Director-General, IOD India, UK and Europe, Chancellor and a Professorial Fellow of the School for the Creative Arts, Chairman of the Audit and Risk Committee of United Learning and a member of the advisory board of Bridges of Sports. He has helped to improve director, board and corporate performance in over 40 countries. Author of over 60 books and reports he has held professorial appointments in Europe, North and South America, the Middle East, India and China. Colin was educated at the London School of Economics, the London Business School, UNISA and the Universities of Aston, Chicago and Southern California. He is a fellow of seven chartered bodies. His recent publications can be obtained from: http://www.policypublications.com/
27 Oct 2016