Company boards must pay more attention to instilling the right corporate culture in order to restore trust in business and deliver long-term sustainable growth, according to the FRC
COMPANY boards must pay more attention to instilling the right corporate culture in order to restore trust in business and deliver long-term sustainable growth, according to the profession’s watchdog.
The report, published by the FRC, comes after the prime minister, Theresa May, called for an overhaul of boardroom governance, including plans to put employee representatives on company boards.
Recent governance scandals including Volkswagen’s emissions rigging, Tesco’s accounting irregularities, and the Libor investigations damaged trust in big business and director behaviour and highlighted the need for greater attention to company culture at board level, the FRC said.
“A healthy corporate culture leads to long-term success by both protecting and generating value in the UK economy. It is therefore important to have a consistent and constant focus on culture, rather than wait for a crisis. A strong culture will endure in times of stress and change,” said Sir Win Bischoff, chairman of the FRC.
The report, which collated the views of more than 250 chairmen and CEOs of the UK’s largest companies, found that excessive boardroom pay is often cited as a driver of bad behaviour and that the “inconsistent alignment” between pay and company performance has led to a lack of public trust.
It also found that the culture is increasingly important because intangible assets such as intellectual property, customer base and brand now account for over 80% of corporate value.
“An increasing proportion of enterprise value is now made up of intangibles that are not capitalised such as brand, reputation, intellectual property, human capital and culture,” the report said.
The FRC admitted that culture is inherently difficult to measure and is hard to link to executive. However, the researchers outline seven key findings associated with setting and measuring the right company culture.