Ethics and Governance

Ethics

Penelope Kenny outlines the ethics and governance issues that will likely be under the spotlight in 2017. As the new year takes off, social media is overflowing with reflections on the past year and learnings for 2017. Thoughts on governance and ethics take the long view and it is so delightfully tempting to make predictions. I propose to look at trends for 2017 based on recent developments, with consideration on where the trends may lead our thinking in 2017. This article addresses corporate governance and the ethics agenda. It attempts to identify trends and issues which professionals are likely to see unfold in 2017. Observations from the business of corporate governance Intense activity from legislators and enforcers continues apace. There have been recent updates to legislation; publications on corporate culture, corporate governance and stewardship; and Government requests for corporate governance reform. Of high impact and concern for individual directors and boards are:   The broadening of directors’ responsibilities; The roles and duties of directors being more thoroughly defined; The inclusion of ethics and culture in more corporate governance conversations; and The conversation between corporation and the State. These observations are based on new Irish legislation codifying directors’ responsibilities and recent reports from the Financial Reporting Council (FRC) in the UK. There is also heightened interest in ethics at the core of corporate governance conversations and this is evidenced in the observations contained in the FRC’s 2016 report entitled Corporate Culture and the Role of Boards, which is discussed further below. Directors are now more specifically accountable than before following the codification of directors’ duties and responsibilities in the Companies Act 2014. The new Code of Practice for the Governance of State Bodies, which was published in August 2016, makes directors specifically responsible for all internal controls: financial, operational, compliance and risk management. Previously, directors specifically reported only on the financial controls and the broader responsibilities were implicit. Corporate culture is also being defined as an area of specific responsibility for directors. Last July, the FRC published Corporate Culture and the Role of Boards and this interesting document comments that strong governance underpins a healthy culture. It also states that boards should demonstrate good practice in the boardroom and promote good governance throughout the business. The report examines some thought-provoking questions: How can the board influence and shape culture? How does the board bring corporate values to life? How can the board build trust with stakeholders? How can boards assess, measure and monitor culture? The report suggests that the tone from the top determines organisational culture and furthermore, boards should assess the culture and determine indicators thereof. The board is therefore responsible for the culture, values and ethical standards in their organisations. This gives directors the very broad responsibility of not only setting the culture and values, but also of measuring and assessing organisational culture. The report requests that investors and other stakeholders engage constructively to build respect and trust, and work with companies to achieve long-term value. Investors therefore need to consider carefully how their behaviour can affect the behaviour of the company and understand how their motivations drive company incentives. As board members, a brighter light is being shone on our broad responsibilities to the organisation and its stakeholders. We are also charged with the ongoing quest for effective measures of corporate culture and the implementation of corporate values throughout the organisation. Corporate and individual ethics In practice, the role of the board in “bringing values to life” is problematic. 61.5% of boards do not regularly make ethics and culture a full board agenda item according to the FRC’s report. Corporate values and ethics have been keywords in lamenting the recent large corporate scandals, which continue unabated at home and abroad. Media reporting focuses not only on corporate governance and the board, but on the ethical standards of the board and the individual directors. In an article published by Reuters last September entitled “Wells Fargo scandal reignites the debate about big bank culture”, it was reported that two former Wells Fargo employees filed a class action in California seeking $2.6 billion or more for workers who tried to meet aggressive sales quotas without engaging in fraud and were later demoted, forced to resign or fired. “Wells Fargo knew that their unreasonable quotas were driving these unethical behaviours that were used to fraudulently increase their stock price and benefit the CEO at the expense of the low level employees,” the lawsuit said. All this was reported in The Guardian in September 2016. Closer to home, Fintan O’Toole expressed his outrage in the Irish Times on 2 January 2017: “The appalling scandal in which the banks deceived at least 15,000 of their customers into moving from tracker mortgages to considerably higher interest rates, often at dreadful personal as well as financial cost. It is clear that this defrauding of customers was systematic and deliberate. It operated in 15 banks – essentially the entire Irish system – and so far as we know there is not one case of a “mistake” favouring the customer. It raises in the starkest way exactly what [Matthew] Elderfield was talking about: individual accountability for misselling and overcharging”. Apart from the human misery which we as a society are accepting, what this means for Ireland is that – despite our high levels of compliance and regulation – we have not created corporate and individual accountability nor a culture of ethical behaviour in our institutions. There is much to be done to align corporate culture and individual ethical standards. In Leading with Integrity: A Practical Guide to Business Ethics, Ros O’Shea firmly positions corporate ethics as the responsibility of the individual directors on the board. She links individual leadership values to the values which filter down through the organisation. This conversation is likely to gain momentum in 2017 with ongoing lawsuits and as we continue to further review, question and discuss our ethical guidelines and our own professional ethics. Corporate governance reform We can expect further corporate governance reform from the UK. Prime Minister Theresa May states that: “for people to retain faith in capitalism and free markets, big business must earn and keep the trust and confidence of their customers, employees and the wider public”. This quote is part of her introduction to Corporate Governance Reform: Green Paper 2016, which sets out a new approach to strengthen big business through better corporate governance. In the foreword, the UK Secretary of State, Greg Clark, summarises that “the green paper seeks views on three areas where we want to consider options for updating our corporate governance framework: first, on shareholder influence on executive pay, which has grown much faster over the last two decades than pay generally and than typical corporate performance; second, on whether there are measures that could increase the connection between boards of directors and other groups with an interest in corporate performance such as employees and small suppliers; and third, whether some of the features of corporate governance that have served us well in our listed companies should be extended to the largest privately-held companies at a time in which different types of ownership are more common”. Certainly the thinking in the UK, surmised from this report, indicates that Adam Smith’s Wealth of Nations is left far behind, and society and democracy are not separate from, but are an integral part of, the values and actions of corporations. The wider societal responsibilities of companies and boards are under scrutiny. There is a recognition, certainly in the UK, of companies’ responsibilities to employees, customers, suppliers and wider society. Diversity Diversity on boards remains an area of huge interest for researchers and policy-makers. We are starting to accept the causal link between board diversity and better profitability. The green paper referred to above suggests that board composition should better reflect the demographics of employees and customers. Implicit in that statement is a board more representative of the community it serves. According to a McKinsey report published in September 2016, workplace diversity would improve gross domestic product (GDP) in the UK: “Bridging the UK gender gap in work has the potential to create an extra £150 billion on top of business-as-usual GDP forecasts in 2025, and could translate into 840,000 additional female employees. In this scenario, every one of the United Kingdom’s 12 regions has the potential to gain 5-8% incremental GDP”. Robert Swannell, Chairman of Marks & Spencer, is quoted in the Hampton-Alexander Review of FTSE Women Leaders as saying: “I certainly believe having more diverse boards and senior teams is right and brings better perspectives, challenge and outcomes. It is right for business to reflect the world in which we operate and so we should just get on and do it”. Adam Smith’s support for maximising profits by harnessing employee expertise is replaced by boards, executives and management addressing and including the concerns of all stakeholders in the corporate world. Stakeholder engagement Considering the FRC statement below, directors are being charged with aligning the interests of business and society as part of their corporate governance responsibility: “We share the objective of wider stakeholder engagement by companies and are considering how corporate governance principles can best meet the demands of all stakeholders or be amended to do so. We look forward to responding to the Government’s consultation later this year and will propose measures to realign the interests of business and society… the FRC supports the need for change in the relationship between business and society. As the guardian of the UK Corporate Governance and Stewardship Codes, the FRC is keen to explore how it can ensure governance and investment are more closely aligned with the broad public interest”. This statement goes way beyond the corporate social responsibility (CSR) programmes which corporations heretofore were content with. Corporations are now charged with holding obligations to all stakeholders and being accountable to society as a whole. Similarly, directors are therefore held to account in relation to their obligations to all stakeholders. The UK Stewardship Code, while not updated since 2012, is under continuous review for its impact and implementation. Directors: some key concerns The broadening and better definition of the role and responsibility of directors is a likely interest area for the future as directors are increasingly responsible for a much wider range of legislation and compliance. Recent surveys show that role clarity, complexity, sustainability, changing business models, corporate culture and business reputation in the community are key concerns. Recent research undertaken by Chartered Accountants Ireland, published in the October 2016 edition of Accountancy Ireland and written by Mary Halton, suggests that role clarity in the boardroom is a driving factor in board effectiveness. It states: “In theory, this should be a relatively straightforward issue, particularly in light of the significant legal, regulatory and good practice guidance available. In practice, however, boards and their members face a number of challenges in delineating roles and ensuring that these are consistently understood by all”. Increasing complexity and the time commitment involved in non-executive directors’ roles is the key finding from a survey by the Institute of Directors in Ireland of 385 of its members in 2016. The Institute of Directors surveyed non-executive directors from private state and public boards. The Australian Institute of Company Directors, meanwhile, surveyed its members in December 2016 on the issues most likely to keep them “awake at night”. The results were identified as follows in order of importance:   Sustainability and long-term growth prospects; Structural change or changing business models; Corporate culture; Business reputation in the community; and Legal and regulatory compliance. Directors are not only showing interest in the business environment which delivers profits, but also showing an increased self-consciousness about themselves as directors and their roles and responsibilities. Formalising this trend, the board self-assessment questionnaires mandated by the Code of Practice for State Bodies 2016 requires boards and the audit and risk committees of state boards to self-assess for effectiveness. Corporation and the state In 2016, we saw the rise of a populist, anti-establishment voter. In Ireland, the water charges were an example. The tussle between states and corporations was exposed with the Apple Inc’s taxes and Deutsche Bank’s fines, both of which resulted in a dialogue between European and American legislative and tax authorities. As our corporations change their goals and purpose and our governments struggle with the corporate environment, this tectonic abrasion between corporations and governments looks set to continue. Conclusion Corporate governance reform is under way in the UK, and indeed in Ireland, against a background of government-led reforms. There is a corporate interest in being more responsible and more state-like. This suggests that the lines between corporation and state may be blurring. Boards are under pressure to represent a more diverse opinion and to mirror the communities which they serve. Meanwhile, these communities are becoming more vocal. Peter Cosgrove of CPL showed the recent Chartered Accountants Tech Forum how employees at Mozilla effectively fired their CEO, Brendan Eich, through social media pressure, which looks remarkably similar to a form of popular voting. (Eich maintained a public stance against gay marriage in 2014, and employees disagreed). Similarly, the US elections were beleaguered with accusations of corporations wielding influence on the outcome via large funding for the candidates. Certainly the future lies in greater regulation of corporations and greater expectations of corporate governance standards. This is occurring at a time when corporations are gathering more power, money and influence than sovereign states and at a time when the workplace is becoming more transparent and more democratised. Chartered Accountants are charged as professionals and often as board members to navigate in this increasingly political space – not just to direct and govern, but also to influence, guide and comment on compliance and regulation. The duties and responsibilities of board directors require more professionalism and more knowledge. We know our responsibilities do not increase or decrease with the size of the organisations we direct and govern, nor with remuneration for these roles, yet those responsibilities are expanding. The boundaries of the study and discipline of corporate governance itself are widening and shifting. We have seen from the UK Prime Minister’s comments on the reform of corporate governance that better corporate governance is seen as a driver for such issues as corporate responsibility, improved profits and more stakeholder engagement to name but a few. Interesting opportunities abound. Penelope Kenny FCA is author of ‘Corporate Governance for the Irish Arts Sector’, published by Chartered Accountants Ireland. 

Sep 13, 2019
Ethics

CEOs aren’t given instruction manuals when it comes to boards. Kieran Moynihan explains how CEOs and executive teams can give respect to the board while also demanding excellence for the shareholders and stakeholders. My board frustrates the hell out of me. We put a huge effort into producing our packs and I seriously question if they read them properly. They second-guess me and my executive team on a continuous basis, haven’t a strategic bone in their bodies and, to be quite honest, other than their watchdog oversight role, I seriously question if they add any value to this company.” These were the opening words from a CEO in a board evaluation I was leading some time back, and they’re nothing new. I have heard them from CEOs across a wide range of sectors, scale of companies and maturity/experience level.  I asked this CEO to place himself in the shoes of one of his non-executive directors (NED) and imagine how open and engaging the CEO and executive team were towards himself and board. What is the level of genuine accountability and performance culture? Is respect being demonstrated in terms of getting a big complex board pack out four or five working days ahead of the board meeting as opposed to 24 hours beforehand? Are you and the other NEDs expected to drop everything to prepare properly? Finally, how much opportunity does the CEO give NEDs to get them involved in the formation of the company's strategy?  The CEO responded very honestly that he had never really thought about the board in this way and that, in the cold light of day, he could see that he had been in a pattern of ‘managing the board’, and after many years, had arrived at a point where he basically had no expectations of them. This is a sad indictment on this board and the real losers here are the shareholders and broader stakeholders.  The reality is that often the shareholders and stakeholders do not even realise what is going on. I believe that the vast majority of CEOs are very conscientious, and understand the value of a high-performing board, but often struggle with genuinely partnering with their board to enable an outstanding combination of executive and non-executive board members so they can deliver outstanding value for their shareholders and stakeholders.  One of the reasons for this is that there is no 'Becoming a brilliant CEO' manual where CEOs can learn best practice for engaging with the board. As a former CEO, I can testify to the fact that in the early stages, I was very cagey with the board. I wanted to concentrate on the good news, demonstrate that I had the strategy all figured out, and so slipped easily into managing the board. This is a natural and understandable starting point for many CEOs. I was blessed to have an outstanding board chair who gave me a dose of salts early on and helped me engage with and leverage the board properly.   Best practice There are a number of key areas that I have found represent best practice for a CEO and executive team in enabling high-performing board teams. Respect for, and accountability to, the board It should go without saying that a CEO should respect the board but in reality, some CEOs are quite disrespectful, both to the board itself and the board members individually and collectively. In many cases, this can be an aggressive, dominant CEO who merely tolerates the board. In other cases, it can be a lot more subtle. Respect for the board is the key foundation for the CEO and executive team to demonstrate the highest levels of accountability (and, by extension, the shareholders). When a CEO and executive team are accountable to the board, they enable the non-executive board members to discharge their oversight responsibilities. When the CEO and executive team’s reporting is accurate, honest and timely in terms of the performance and progress of the organisation, it means the NEDs don’t have to deep dive into the operational and financial minutiae, or have to second guess the CEO. They can, instead, devote a far bigger portion of the board’s time to strategic discussion and, thereby, adding value to the executive team. Performance culture  Every time I see a high-calibre CEO properly engaging with the board, they not only set high expectations for themselves and employees across the organisation, but also set a very high bar for the board members themselves. Working closely with the board chair, a CEO is absolutely entitled to insist that the board works hard, is able to add value to the executive team and the company, has regular evaluations (both internal and external) and is continually looking to add that extra 10% to the board’s performance.  A partnership model between execs and non-execs  At the core of outstanding board teams is a genuine partnership model between the executive and non-executive board members, which balances a strong level of oversight and significant value-add by the board. The best boards simply embrace the highest levels of robust challenge and debate in order to stretch their brain cells and understand complex issues, get to the bottom of performance problems, see around dark corners and, ultimately, make the very best decisions. A progressive CEO will set the tone for this partnership. By working closely with the board chair, the executive team will be able to deliver their part of this partnership model. In return, the CEO and executive team are entitled to expect the NEDs to add strategic value, bring diverse and independent thinking and, ultimately, enhance the thinking and decision-making of the executive team. This partnership model is illustrated in Figure 1. High-quality information model and information flow to the board A progressive CEO understands that the board is highly dependent on the quality and timeliness of the information provided. In board evaluations, I regularly see the common problem of a very dense board pack with reams of complex reports but very little or no quality guidance from the executive team on what’s critical, the areas the NEDs need to focus on, the areas the executive team need help with or the areas of concern for the CEO and executive team. Combine this problem with the bad habit of sending board packs out late and you can understand why NEDs often feel that they have to second guess the CEO and ask detailed questions at the board meeting. Inspire NEDs to bring their independence and A-game If you read any of the memoirs of highly successful CEOs and entrepreneurs, you will often see the following phrase positioned prominently in the early chapters: “I made a very conscious decision to surround myself with people who were a lot smarter than me”. I often come across CEOs who are very sharp but yet quite happy to pack their board with mediocre NEDs who simply do not add any value. While this is clearly a failure of the board chair, the CEO in many companies has a key role in selecting board members.  Progressive CEOs see the critical value of diversity in their NEDs across age, gender, ethnic background, sector and, most importantly, thinking style. When it comes to NEDs, a CEO and executive team who are partnering extremely well with the board are perfectly entitled to expect each NED to bring their A-game consistently, underpinned by a strong work ethic and commitment to the company. Where NEDs are not doing this, a CEO should work with the board chair to replace those NEDs with ones who will perform and deliver serious value – shareholders absolutely deserve nothing less. Partnering with the board on strategy One of the biggest changes in recent years with how CEOs engage with their boards is in the whole area of strategy. High-performing boards have increasingly moved away from the traditional model of the CEO coming into the boardroom with the company strategy 90% cooked, looking for the board to rubber-stamp the document and allow the executive team to get on with it. Apart from the fact that this legacy approach is very disempowering to the NEDs around the table, and can lead to very serious flawed strategies and group-think problems, CEOs are realising that making big strategy calls in today’s marketplace is a lot tougher than five years ago. These days, the CEO and executive team develop a range of strategic options that they bring to the board at an early stage. This enables every single NED to be involved. In addition to encouraging high-quality challenge and debate around the strategic options identified by the CEO and executive team, it helps the NEDs to put other options on the table which the executive team may not have considered and could ultimately result in a stronger strategy being adopted. Crisis management and asking for help Most companies have to deal with a serious crisis (either self-inflicted or outside of their control) at some point. This could be a significant change in the competitive landscape (business model, pricing, innovation), technology disruption, serious quality problems in products/services, poor sales performance, financial problems, a cyber-attack or a business-impacting loss of critical staff in the company. No matter how strong and battle-hardened a CEO and executive team are, it can be very difficult in the eye of a storm to get an objective perspective on not only root causes, but the optimal way for the company to navigate stormy waters.  A high level of good will, respect and trust that the CEO and executive team have built up with the board over the years is critical in crisis situations. This is where a CEO and an outstanding board can turn to their NEDs, who will roll up the sleeves, get stuck in and provide high-quality help to the executive team and, most importantly, provide a cold, independent perspective to help with the tough decisions.  Setting the example in terms of culture, ethics and behaviours We are in a new era where the spotlight on the behaviour, ethics and culture being demonstrated by a company’s CEO has never been greater. The genie is definitely out of the bottle and the days of some CEOs feeling that it is perfectly acceptable to demonstrate disrespectful bullying, aggressive and passive-aggressive behaviours to their board, their employees and shareholders/stakeholders are coming to an end. Any board worth its salt should be setting the highest of standards for the CEO and executive team. Summary The impact of the CEO and executive team’s approach to the board has a fundamental impact on the effectiveness and performance of a board. I am always moved by the powerful impact it has on the board when a CEO and executive team partner with the NEDs in a respectful and accountable way, demonstrate the highest level of behaviours, ethics and integrity, provide high-quality information flow, partner on strategy, inspire NEDs to go the extra mile and integrate with them to excel on behalf of their shareholders, employees and stakeholders.    Kieran Moynihan is the Managing Partner of Board Excellence.

Aug 01, 2019
Ethics and Governance

How can companies transform corporate social responsibility from a ‘nice to do’ activity into a strategic imperative? While corporate social responsibility (CSR) is a discretionary expenditure, leaders are increasingly tuned in to the corporate value of CSR. Indeed, in the current socio-economic environment, it can be argued that companies must be seen to be involved in CSR in some way. And there are many benefits for companies including improved company reputation, a more attractive employer brand and greater employee engagement. As a cost, companies should be able to evaluate the return on their CSR expenditure as they do for any other expenditure. However, many companies do not view CSR expenditure in this way. Instead, they see it as a moral obligation to give back to the community. Nonetheless, many companies are taking a more formal approach to their CSR expenditure. There is growing support for the idea that the measurement of CSR activity is important as it supports decision-making within the company, makes managers more accountable for CSR expenditure and generates support within the company by illustrating the company’s CSR achievements. Thus, companies can use measurement as a means of building a business case to justify their CSR expenditure, which in turn can help protect CSR projects into the future. How, then, can companies go about measuring their return from their CSR activities? One model or framework which encapsulates the process is the Impact Value Chain Model.  Inputs – Activities – Outputs – Outcomes Let us take as an example a company that wishes to employ staff members from minority groupings.  The objective is to reach a certain percentage by a specified date; the inputs are the resources devoted to this objective, in terms of money and employees’ time; the activities are the actions taken in terms of recruitment and retention practices; and the outputs are the number of individuals from minority backgrounds recruited and retained within a specified time period. The short-term outcome would be, for example, the achievement of the company’s goal of reaching the agreed target by the agreed date. Long-term outcomes, on the other hand, would include improved staff morale, a more appealing employer brand among minority groups and a boost for the company’s reputation. However, measuring outcomes can pose difficulties for organisations as there can be both intended and unintended outcomes. Furthermore, outcomes can be examined in the short-term or the long-term and there may be difficulties in linking long-term outcomes to company actions. For example, to what extent does a scheme to pay farmers a fair price in a specific area drive economic activity in that area compared to other initiatives that may have taken place at the same time? In summary, measuring the benefits arising from a company’s CSR activity can help the company assess whether it is achieving its CSR objectives; ensure that it does not waste resources; build support among employees; protect CSR programmes when resources are constrained; and ensure that a strategic approach is being taken. So, how can managers ensure that the right approach is being taken when evaluating CSR expenditure? Define your objectives Clearly define what you want your CSR activity to change. What will the activity achieve for the beneficiaries and for the company? The goals must be set out in quantitative terms as far as possible. For example, a company might want to be seen as an employer of choice. This goal can then be quantified by the number of applications received and whether retention levels have improved over the course of the CSR initiative. Identify the inputs You must be clear on the inputs required. And don’t confine it to financial resources alone – include staff volunteering hours and other resources, such as the company facilities used to provide the CSR initiative. Outline your activities It is also important to define the activities undertaken. Sometimes, more activities emerge from the inputs than was planned. As an example, let’s return to the recruitment initiative to increase the number of people from minority backgrounds. This initiative also adds to the company’s equality agenda and positively impacts the company’s reputation. Be clear on the outputs The outputs generally receive the most attention. If, for example, the aforementioned company is successful in the recruitment of individuals from minority backgrounds and they stay with the company for a specified period of time, or a fundraiser raised a certain amount of money for charity, the recorded metrics can provide a short-term measure of success and can be useful in boosting morale. Classify the outcomes It is important to outline the list of short-term and long-term outcomes accruing from the CSR initiative. These outcomes need to link back explicitly to the overall objectives of the initiative. Quantify the outcomes Difficulties in quantifying the outcomes can make managers shy away from this part of the process. The key question is: can we attribute the increase in the company’s reputation score to the company’s CSR activities? It is important to isolate the issue as much as possible. While the results will not be scientific and may be arrived at through an element of guesswork, it can help identify broad linkages. This exercise will assist in highlighting the value of the CSR initiative and, therefore, safeguard the future funding of the initiative. Ensure the participation of staff throughout the process The participation of staff in the above process is key, as it gives staff ownership of the chosen CSR initiative and thereby increases the likelihood of staff buying into the process. This in turn can lead to increased motivation and greater team cohesion within the organisation. Debrief The need to debrief in the aftermath of a CSR initiative is imperative. The idea is to step back and examine what was achieved, how it was achieved and what could be changed in the future to make the initiative more effective or increase the benefits to both the company and the relevant stakeholders. Conclusion In conclusion, the Impact Value Chain Model is a roadmap for how CSR can be evaluated. It provides a strategic lens through which management can assess the value of CSR initiatives and move CSR from a ‘nice to do’ activity to a strategic activity; one that can demonstrate its contribution in terms of the many benefits it brings and thereby ensure support and funding into the future. Dr Blath McGeough is a Lecturer in Management at the Technological University Dublin, Tallaght Campus. Dr Francis McGeough is a Lecturer in Accounting at the Technological University Dublin, Blanchardstown Campus.

Jun 03, 2019
Ethics and Governance

Chartered Accountants can bring a host of skills to their organisation’s CSR efforts. And as good business partners, they should. Chartered Accountants can use their unique skill set to help drive their organisation’s corporate social responsibility (CSR) agenda. Now, I know you are probably saying: “Does this guy not know how much work I have already?” Well, I can guess, but on the other hand, you know that you are already doing more than you have to; that you can do even more; and that you will get much satisfaction in making your organisation – and the world – a better place. How much you can help depends on your position in the finance hierarchy, but that’s the thing about being a good business partner: anyone can do it. I won’t go into the issues covered by CSR (for a comprehensive understanding, I recommend ISO 26000 Guidance on Social Responsibility). Instead, I will focus on the scenarios you are likely to encounter in business when dealing with your CSR department, which will typically comprise environment, safety, labour practices and business ethics. Earning legitimacy Your organisation’s CSR department may be chaotic. The subject is still relatively new, even though the Brundtland Commission’s report on sustainable development was published over 30 years ago. The department may struggle to establish legitimacy in the eyes of a management team that lies somewhere on the scale between sceptical and hostile. It may be trying to stay afloat despite being destabilised by the latest CSR issue, which it is likely ill-equipped to tackle. Such topics could include water extraction, tax payments, community involvement, plastic bottles, lobbying and so on. The department will probably feature environmentalists, human rights practitioners, labour rights specialists or business ethics aficionados – this will depend on what management sees as the “key CSR issue” – but will lack those with “pure” management or business skills. Because so many issues fall under the CSR umbrella, there will probably be insufficient coordination among these elements. In that context, Chartered Accountants may wish to consider the following: Get involved and make friends with CSR. They will be delighted that someone wants to help them; Comment on the suggested policies and procedures covering internal control, collection of information, budgets and so on. Chartered Accountants can write policies and procedures in their sleep, so consider how your organisation’s CSR policies can be made more robust; Challenge the CSR department on the appropriateness and objectivity of its chosen indicators. They shouldn’t merely be indicators that are easily achievable or collected out of habit; Critically review how the team sets CSR targets. Are they stretching yet achievable? Do they link to the business strategy? Has the organisation budgeted for the investments necessary to achieve the objectives?; Guide the CSR team on how to cost projects realistically. You will bring a dose of realism to the table and help your colleagues remove their rose-tinted glasses. You will do this not to scupper a project, but rather to ensure that, if approved, there is a fair chance of success; and Design appropriate graphs to help your colleagues visualise the organisation’s actual CSR performance. Encourage the team to move away from the useless-but-ubiquitous pie charts (at best, they add some colour to a report) and toward trend charts that show actual progress over time compared to the target. Working towards meaningful action Often, management’s commitment to CSR is shaky at best. The business is only “doing” CSR because an influential stakeholder has demanded it, which may result in lip service without any real commitment. Management will want to see “progress” – winning an award (any award) every year, reducing the number of non-compliances, or increasing the volume of CSR-related content in the annual report or on the organisation’s website – provided it doesn’t cost much or do anything to rock the corporate boat. If this paints a familiar picture, you may wish to consider the following: Challenge management by illustrating any lack of commitment and remind them of the risks associated with the weakest links in their approach. One example is the business that emphasises excellent progress in one area of CSR (gender diversity, for example) while remaining silent on another aspect it would prefer not to talk about (the absence of a whistle-blowing policy, for example); Push for a robust and objective CSR strategy that integrates into the overall business strategy. Ensure that it is real and motivates staff and other stakeholders, and is not just a convenient communications-friendly bolt-on; Develop and argue the business case for CSR with opponents who refuse to accept that there is one; Push for the inclusion of CSR targets in the strategy, budgeting and forecast cycles so that the business has a benchmark for actual performance; Challenge the mix of indicators used so that there is a reasonable balance between the following: Compliance (those for which there is no choice, such as the number of penalties for environmental transgressions); Capacity (measures indicating how the business is preparing for CSR, such as board attendance performance or implementing that whistle-blowing policy); and Commitment (realising a reduction over time in water use, CO2 emissions or the ratio of CEO remuneration to average employee pay). The reporting dilemma It is possible that reporting will also be chaotic, partly as a result of the department’s disorganisation but also because guidance rules on CSR are still imprecise – very much so compared to what you will be used to in accounting. You may, therefore, wish to consider the following: Help the department choose appropriate and objective norms and standards to use. There is a proliferation of these, usually set by profit-making organisations. The risk is that these standards may be too focused on one aspect of CSR or too heavy in specific sectors; Devise calculations in the absence of full information. For example, how much water is recycled? What CO2 emissions are attributed to employees’ travel to work or business travel?; Check that the indicators’ units of measure allow for consolidation at each level in the hierarchy. For example, there is little real benefit in collecting the number of female managers at each location or subsidiary if you don’t also know the total number of managers at each; Help the CSR department adopt reliable variance analyses incorporating volume, price, mix, efficiency and one-off elements. It is misleading to claim an improvement in an indicator by taking the change in the total value. You need to obtain an understanding of the drivers behind the change. It wouldn’t be acceptable for management to take credit for your business becoming greener if, in reality, legislation brought about the change; Push to get a standardised CSR reporting system, including what you would consider as standard input and validation checks (with blocking controls also). Data quality and data management will probably be dreadful: most data will be held in individuals’ Excel spreadsheets. Each element of CSR could well have different reporting routes and cycles that replicate information requirements, often with differing definitions. It would be best if you pushed for the adoption of one reporting system for all non-financial indicators; and Encourage the CSR department to collect information every month rather than in an annual free-for-all after year-end, so you can see trends emerging and do something promptly. Final thoughts Finally, there are some other ways in which Chartered Accountants can help CSR. You may wish to consider the following: Work to develop an annual report that gives a reasonable balance to each of the financial, CSR and other non-financial elements; Be a good citizen and push to ensure that the finance department applies relevant CSR policies; and Talk positively about CSR internally, as you will generally elicit a favourable reaction from staff who are willing to give their views or participate in initiatives. Peter Gillespie FCA is the founder of Meaningful Metrics. He worked in manufacturing and services in several countries for 30 years.

Jun 03, 2019
Ethics and Governance

Chartered Accountants Ireland is a proud supporter of the Trinity Centre for People with Intellectual Disabilities. In this article, we hear from those involved in the programme including Eavan Daly, who completed a very successful internship with the Institute last year. An introduction Shauna Greely, Chair of the Diversity and Inclusion Committee and a Past President of Chartered Accountants Ireland. Diversity has become an area of significant focus in the business world. Businesses recognise that having a diverse workforce with a greater variety of talents and experiences enables them to adapt to dynamic markets and be more innovative. A focus on diversity also allows under-represented groups to get their fair share of opportunity, and opportunity is a critical word in this regard. Chartered Accountants Ireland, through its Diversity and Inclusion Committee, ensures that the Institute focuses on the areas of diversity and inclusion that impact on and are important to its members. One diversity and inclusion initiative the Institute is involved with and which members may not be aware of relates to our involvement as one of the early business partners to a programme run by the Trinity Centre for People with Intellectual Disability (TCPID). Over the past 10 years, the Institute has invited several students with intellectual disabilities to gain work experience in Chartered Accountants Ireland. During my involvement with Chartered Accountants Ireland, I have been privileged to attend many events, meetings, courses and lectures where I have learned of the positive difference the Institute makes on accountancy, business and the wider community.  However, the event that stands out for me was my attendance at a presentation in the lecture hall of Chartered Accountants House given by a TCPID student. Eavan Daly has an intellectual disability and had completed many months of work experience with Chartered Accountants Ireland. Eavan gave a presentation on her experience and I was struck by that fact that, although this was her first job, Eavan was making a professional presentation in a lecture hall to a large group of colleagues. The experience led to many firsts for Eavan, and I was incredibly proud that Chartered Accountants Ireland made this possible. I saw first-hand the benefits that participation in this programme has brought to Chartered Accountants Ireland as an organisation and the positive impact it has had on staff. Equally important are the enormous benefits afforded to Eavan and her family. The experience gave Eavan the independence and confidence to go to work each day with a staff ID card, a desk to sit at, a computer to log-in to, and buddies to have coffee or lunch with – things many of us take for granted. There are many accountancy, financial services, legal and other business organisations already partnering with TCPID to offer internship and work experience. This programme provides such wide-ranging benefits that I would urge other organisations to consider getting involved. My work placement with Chartered Accountants Ireland By Eavan Daly Eavan Daly is my name, and I completed an 18-week work placement with Chartered Accountants Ireland in September 2017. I travelled alone by train from Drogheda to Dublin on Tuesdays and Wednesdays. I worked from 10am to 12.30pm on both days. I loved the whole experience of making new friends, learning new skills and facing new challenges. Most of all, I loved feeling included and being part of the workforce. In Chartered Accountants Ireland, I worked in reception as a member of the Conference and Facilities Team. It was my duty to meet and greet all visitors to the building. I showed them where to go or contacted the person they were looking for to let them know they were there. I received and signed for all deliveries and registered post. I emailed or rang the person whose delivery it was to let them know it had arrived. I visited the Publishing Department and sat in on a meeting, and I was invited to the President’s Dinner where I learned about networking. This was one of my highlights. At the end of my work experience,  I gave a presentation. My work colleagues, guests from the broader working community and my mentors from Trinity came to see me. Eavan has completed work placements in Chartered Accountants Ireland, Orix Aviation and Bank of Ireland. An employer’s perspective Bernard Delaney, Director of Human Resources at Chartered Accountants Ireland Chartered Accountants Ireland is proud to be an enabler of the TCPID programme – not just because of the benefits for the students and our staff, but because it is the right thing to do. Our proximity to Trinity College Dublin allows us to offer a safe environment where students have a familiarity with the locality while providing just enough challenge as they join a new workplace – a stressful event for most people. Our employees gain hugely by working alongside people with a different perspective and life experience. It informs and enriches our work experience by being inclusive rather than just diverse, and helps us challenge our ingrained views and work habits. We are a member organisation that values the contribution of every individual; this programme is a win-win for us, and we are privileged to be involved. A coordinator’s perspective Marie Devitt, Pathways Coordinator at the Trinity Centre for People with Intellectual Disabilities The Trinity Centre for People with Intellectual Disabilities is an established not-for-profit organisation, operating a pioneering education programme for students with intellectual disabilities. We are part of the School of Education at Trinity College Dublin. Our Level 5 Certificate in Arts, Science and Inclusive Applied Practice covers a wide range of modules over two years. Our goal is to equip students with the requisite education and training for future employment or further education, allowing them to lead more independent lives. We have established a robust network of business partners, including Chartered Accountants Ireland, who work with us to provide student work placements, mentoring, paid internships and, in some cases, permanent employment for our graduates. Our business partners have allowed us to offer insight into potential career paths for our students and graduates. In the past, these young people were marginalised with few opportunities for meaningful paid employment. With the help of our partners, this is now changing. Not only are we able to offer supported career pathways for our students as they move on from Trinity College Dublin, but thanks to the range of the business partners, we can now offer them real choice and allow them to look at specific industries that might suit their particular interests and skills. We developed the TCPID Graduate Internship Programme with the support of our partners. Since launching this programme on a pilot basis in January 2017, we have had over 23 paid graduate internships, five of which converted into permanent roles. In addition to these permanent roles, a number of our graduates have been in paid internships with our business partners for more than six months with their contracts renewed. Our ultimate goal is to find permanent roles for those who want them and transition pathways into further education for those who may wish to explore other options.  Our business partners are a core part of our programme and have supported us in many ways. We are looking to expand our network of partners to help increase the options available to our students and graduates. Together with our TCPID business partners, we can make a real difference and build true inclusion within the workplace and within society. A parent’s perspective Olwen Daly, Eavan’s mother Eavan’s family, friends and her local community are proud of her achievements and are grateful for, and appreciative of, those enlightened employers who choose to give her a chance. To those who have no experience of anyone with intellectual disability, we believe that to become fully literate, as Eavan has, and to travel alone from Co. Louth to Dublin is a magnificent achievement. It is the accumulation of thousands of tiny steps, often supported by extraordinary individuals and organisations. Marie Devitt along with the TCPID Graduate Placement Programme and supporting business partners fall firmly into this category. Eavan’s goal is a job, and we know she will get there. Please continue to support her and other students in their endeavours. For further information about how your company can become a part of the TCPID Business Partners Programme, contact Marie Devitt, TCPID Pathways Coordinator at devittma@tcd.ie or (01) 896 3885.

Jun 03, 2019
Ethics and Governance

Board leadership requires decisiveness and emotional intelligence, particularly when the company in question is in the eye of a storm. There has never been a greater focus on boards and the critical role the board plays in the stewardship of an organisation and ensuring a sustainable future for its shareholders and stakeholders. The launch in the UK in December 2018 of The Wates Corporate Governance Principles for Large Private Companies is a seminal moment for corporate governance in the UK and Ireland, as it represents the first major step in raising the bar for corporate governance and board effectiveness in private companies. A key focus of these new guidelines is the leadership role of the board chair, which can be summarised as follows: “the chair leads the board and is responsible for its overall effectiveness, promoting open debate and facilitating constructive discussion. The chair should ensure a balanced, diverse board where all directors have appropriate information and sufficient time is made available for meaningful discussion”. Key responsibilities In working with boards across Ireland and the UK, I strongly believe that the board chair’s leadership has the biggest impact on the board’s effectiveness and performance. The expectations of a modern board chair have increased significantly over the years and in particular, a progressive board chair needs exceptional levels of emotional intelligence, leadership skills and business judgement to discharge their key responsibilities, which include: Overall leadership of the board team; Creating the conditions for overall board and individual director effectiveness; Demonstrating the highest standards of integrity and probity; Setting clear expectations concerning the organisation’s culture, values and behaviours; Setting clear expectations concerning the style and tone of board discussions; Managing board dynamics, engagement and conflicts; Leading the composition of the board, ensuring a vibrant and diverse mix of board members across gender, age, professional background, sector expertise and thinking styles; Overall communication to shareholders and stakeholders; Building and maintaining a healthy, constructive and balanced relationship with the CEO; and Assessing the performance of the board, individual directors and the CEO. Make a strong start While serving on boards over the last 20 years as a chair, non-executive director, CEO and executive director, I have seen first-hand the pressure for a board chair to integrate a complex mix of executive and non-executive board members. They are also tasks with creating a cohesive and hard-working team that is comfortable with high levels of robust challenge and debate, with every board member genuinely contributing and bringing their A-game to help the board excel on behalf of its shareholders. The board chair can be a lonely role as you strive to steer the board to arrive at a consensus position and optimise the decision-making of the team, particularly in times of significant stress on the organisation and serious conflict within the board. Serious crises require decisive and courageous leadership by the board chair in driving the board to face up to the challenges, establish viable options to address crises and make key decisions. In many cases, board chairs are promoted from within the board and have served a considerable period of time on the board as a non-executive director. While this has a lot of advantages in terms of understanding the board and the organisation, it can be a little unsettling initially to move into a formal leadership position and take on the significant additional responsibilities that come with it. I would always advocate that a board member who takes on the board chair role makes a strong start in terms of demonstrating to all the board members that while they fully respect the relationships built up over the years, the core responsibility of the board chair is to lead the board in a fair and balanced manner, thus enabling the team to excel on behalf of the shareholders and stakeholders. Performance culture One of the most pronounced changes to the responsibilities of a board chair in recent years is the focus on optimising the “performance culture” of the board. Traditionally, many boards did not have a genuine performance culture and this resulted in ineffective boards with a poor work ethic where board members were happy to show up, drift along and add little to no value to the executive team and the organisation. Board evaluations are one of the primary tools that boards utilise to help understand the current level of board effectiveness and performance. These vary from internal evaluations to independent external board evaluations. When board evaluations were first introduced for stock market-listed companies, they were seen very much as a compliance exercise. Now, board teams are looking at board evaluations in a far more progressive way and using an externally-led evaluation to help the board understand where the team is currently at in terms of its effectiveness and performance while identifying the areas and approaches that will help the board drive a sustainable step-change in performance. The board chair has a critical role in championing the value of either a board evaluation or other initiatives to help the board improve its performance. One of the characteristics of high-performing boards is that they want to continually improve. Average and dysfunctional teams shy away from initiatives that hold a mirror up to the board, challenge the value the board adds, and question whether the board is genuinely excelling on behalf of its shareholders and stakeholders. Times of crisis Another critical area is the leadership of the board chair in times of crisis. Examples of crises include: Liquidity problems; A loss of market share due to increased competition and pricing pressure; An under-performing CEO, which results in a major judgement call for the board in terms of whether to replace the CEO; A dispute with major shareholders and/or the executive team; and A major cybersecurity breach. In crises like these, the company’s board and shareholders look to the board chair to demonstrate strong leadership, a cool head and high-quality judgement to steer the organisation through the crisis. One of the most challenging crises is where you have a major disagreement between shareholders who have nominee directors on the board and, in some cases, a major disagreement with the executive team, which could also have significant shareholders in its ranks. As an independent board chair tasked with the responsibility of focusing the board on what represents the best and most sensible course of action for shareholders as a whole, disputes of this nature can be very complex and fraught with emotion. In many cases, they can also cause severe tensions within the board team. Steer the ship All boards face significant challenges in their respective environments. Company boards face an unrelenting wave of challenges including business model disruption, the impact of technology, a ferociously competitive landscape and geo-political challenges such as Brexit. Charity and not-for-profit boards are dealing with unprecedented funding challenges and a whole new era of corporate governance and transparency requirements. As the captain of the ship, a great responsibility is entrusted to the board chair to steer the board ship through the icebergs and on to the bright blue waters of sustainable success for the organisation. Kieran Moynihan is Managing Partner at Board Excellence.

Apr 01, 2019