LMOR BSS064-06

Leading & Organising Organisational Resources

Week 1: Corporate Governance

1
 Corporate governance

 The OECD describes corporate governance as

‘helping to build an environment of trust, transparency and

accountability necessary for fostering long-term investment,
financial stability and business integrity, thereby supporting
stronger growth and more inclusive societies.’

(OECD 2022)
 Importance of corporate governance
 Corporate governance = vital thread from top of any organisation,
large or small, via the Board and the executive which have
primary responsibility & accountability for:
 decisions,
 actions and
 behaviours of the organisation.

2016: Asda– Employment

Tribunal concluded workers in
Asda’s shops, mainly women,
could compare themselves to
male workers in Asda’s
distribution centres.
Corporate Governance-4P

 People

 Purpose

 Process

 Performance

Source: https://blog.v-comply.com/principles-cg/
What good corporate governance means..
Good governance = about clarity, accountability,& transparency:

 clarity of the organisation’s purpose, and

 the values & principles which drive it;
 accountability for all the organisations stakeholders not just
the financial stakeholders; and
 transparency in understanding and demonstrating how the
organisation lives up to the purpose, values and principles that
drive it.
In Practice: CG: Trust issue
Trust in large business and corporate behaviour has significantly
eroded, both in the UK and elsewhere based on:

 Ongoing corporate financial scandals (e.g. Sports Direct, BP,

Tesco, Carillion);
 Growing pay gap with growth of top executive pay whilst average
pay has stagnated;

 Increasing job insecurity for ordinary workers;

 In Practice CP: HR management issue
 how people feel they are being treated & managed at work (the
psychological contract);
 how their skills are being used &
 what opportunities they have for progression all add to this.

The receiver in charge of 2017: Foxconn, a main

collapsed firm Carillion supplier for Apple's
said further 452 jobs were iPhone, says it has
being lost last week. Today stopped interns from
it was revealed number is working illegal overtime
nearing 1,000 at its factory in China.

.
Previous Rules re Corporate Governance

 Ensuring ‘good governance’ has been viewed in past as

compliance to rules and mechanisms such as through the UK
Corporate Governance Code (based on Cadbury Report of early
1990’s)..
 Easier when ways in which businesses were organised and run
tended to converge on common ideas of:
 hierarchy,
 command & control, and
 standardisation – indeed, principles of rules & policies to govern
behaviour inherent in this thinking.
 Previous Rules re Corporate Governance
In 25 years since current approach developed, much has changed:
 much more growth in smaller private enterprise & greater job
mobility;
 new organisational forms & philosophies have emerged which
aim to humanise work more, create more flexible & diverse
corporate cultures, to better engage the employee as key
stakeholder and to give them (employee) voice.
 These approaches lead to greater agility and responsiveness,
and enable innovation, as well as being better for people
themselves.
 Corporate value has also significantly shifted from the tangible to
the intangible, yet
 agreed systems & metrics we use = still very predominantly
focused on the tangible e.g. adherence by firms to ‘shareholder
value’.
 Previous rules re Corporate Governance

Mostly have to rely on whatever organisations want to report via:

 annual reports and
 narrative, which is invariably inconsistent and hard to compare.

Need to define & encourage more consistent reporting & transparency on:
 how organisations changing,
 how they are investing in their people,
 make-up of their workforces, & how they are living to principles of what
‘good work’ should be.
Are growing calls from investor community, + other stakeholders who
don’t see their interests recognised /accounted for.
Mechanism = to help to define more common frameworks & metrics to
understand all dimensions of human capital & organisation.
CIPD Response to Government ‘Green Paper’ on
Corporate Governance Reform

 CIPD made response in Feb 2017 following the PM Theresa May’s

statement that
“in order for business to regain the trust of the public, organisations
have a responsibility to balance their economic needs with social
accountability.”
CIPD Recommendations to Government re
Corporate Governance (1)

 All publicly listed companies to be required to establish a

standalone human capital development sub-committee, chaired
by HR director, with same standing as all board sub committees;
 Government should set voluntary human capital (workforce)
reporting standards to encourage more publicly - listed
organisations to provide better information on how they invest in,
lead and manage their workforce for the long-term.
 Publicly listed companies should be required to have at least one
employee representative on their remuneration committee.
 CIPD Recommendations to Government re
Corporate Governance (2)

 Publicly listed companies required to publish ratio between pay of

their CEO and median pay in their organisation. Other ratios should
be considered in due course– top to bottom, and top to senior
management team, as well as the ratio been top pay and those in
under-represented or minority groups such as BAME, for example
  The Remuneration Consultants Group’s code of conduct be
reviewed to encourage remuneration advisers to balance external
drivers for pay increases such as benchmark data, with internal
contextual measures providing insight on the reward and
contribution of the wider workforce. 
CIPD Recommendations to Government re
Corporate Governance (3)

 The FRC’s (Financial Reporting Council) recently announced

(2016) review of the UK corporate governance code should
consider whether a more principles-based should be adopted,
placing greater emphasis on the importance of organisations’
human capital investment and development.
Additional Reading

 OECD (2021) https://search.oecd.org/corporate/

 CIPD (2013) The role of hr in corporate responsibility. London:
CIPD
 CIPD (2017) Human Capital Factsheet London: CIPD
 Li, W., Young, S. An analysis of CEO pay arrangements &
value creation for FTSE-350 companies. London: CFA