CORPORATE GOVERNANCE

 

Issue

 

Everyone understands the traditional meaning of stewardship. It simply means that the management of an organisation is responsible for the safe-keeping of the financial resources of the organisation. In the context of corporate governance, however, the understanding of stewardship extends beyond the financial resources of the organisation to all resources, both internal and external, that the organisation seeks to use. This extended view of stewardship is one of the tenets of good corporate governance. The question that needs to be asked is how do we accommodate stewardship with transparency and accountability?

 

Solution

 

Let’s start by looking back quickly at our understanding of transparency and accountability. Transparency applies to the disclosure of any information in the possession of an organisation that may be considered public in the sense that users of the information may ask questions, raise issues, and perhaps even challenge the information itself. Generally, an organisation is now required to be accountable both for the consequences of its activities and also for not repeating any negative activity. Accountability, therefore, is about an organisation being aware that its actions have an impact on the whole of the external environment surrounding it, acknowledging that it must accept responsibility for the effect of its actions, and disclosing that to all of its stakeholders.

 

This is not something that may be dismissed lightly for it is now clear that an organisation’s external stakeholders have the power to affect the way in which those actions are taken. Not only that, they also play a major role in determining the justification of those actions, which inevitably has a financial impact on the organisation. Stewardship therefore, in the context of corporate governance, is concerned with the resources of society as well as the resources of the organisation.

 

As far as stewardship of external resources is concerned, the central tenet of such stewardship is that of ensuring sustainability. What do we mean by sustainability? Simply this – sustainability is focused on the future and concerned with ensuring that the choices of resource utilisation in the future are not constrained by decisions taken in the present. Not only does sustainable activity impact on society in the future, it also impacts on the organisation itself in the future. Thus a good societal performance by an organisation in the present is, in reality, an investment in the future of the organisation itself. This necessarily implies the acceptance of any costs involved in the present as an investment for the future.

 

In the context of corporate governance this means we are obliged to look at the tenets of transparency, accountability and stewardship simultaneously. Beyond the statutory requirements of legislation, accounting standards and listing rules, our organisations need to rethink the presentation of relevant information in a way that satisfies these tenets and enables all of the organisation’s stakeholders to understand how the organisation uses and affects financial, natural and human resources, and how their corporate governance is conducted.

 

Apart from the efforts of the Global Reporting Initiative, there is no internationally agreed reporting standard that organisations can follow. The task at hand is to ensure sustainability reporting delivers information in such a way that it provides decision making value to investors, customers, employees and other relevant groups who have a stake in the organisation or who are in some way affected by the organisation’s actions. This type of reporting should increase the transparency and accountability of organisations, and is considered an important way for organisations to exhibit their performance and long-term economic value and to demonstrate governance responsibility.

 

At Park Advisory we understand this is no easy task and would be more than happy to assist you in developing an appropriate sustainability reporting structure. Please do email us at info@parkadvisory.uk for a free, no obligation initial consultation.