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Sir Win Bischoff
Chairman, Financial Reporting Council
Culture to Capital: aligning corporate behaviour with long term performance
20 September 2016
Thank you Lord Mayor for hosting us in your beautiful Mansion House and for opening today’s proceedings and raising issues that concern a great many of us. They are at the core of what businesses’ role should be and are issues the Prime Minister has personally addressed and on which the government will be consulting. And they are issues which are central to the theme of our conference today - culture in business is a key ingredient in delivering long-term sustainable performance for all stakeholders including customers, communities, suppliers, employees and shareholders – ultimately society itself.
The FRC is the custodian of the UK Corporate Governance Code which will be 25 years old in 2017. The code has been an effective force for good over the last quarter of a century. Its ‘comply or explain’ approach enables companies to have flexibility in the way they govern their business. The Code has been an effective way to promote the better behaviours the government and others, including the FRC, want to see happen.
But there have been some very public incidences of poor conduct. Rebuilding genuine confidence in business and long-term prosperity demands business to have a culture that lowers the risk of failure and achieves a wide range of positive outcomes, including serving the needs of wider society.
The Prime Minister has been outspoken about her government’s plan for business reform. In the light of Brexit, restoring trust and building confidence is even more imperative for our prosperity and wellbeing.
We need a concerted effort to improve the integrity of business and its connectivity with society. Codes put forward principles for best practice that make bad behaviour less likely to occur and public reporting can make it harder to conceal such behaviour. But, by itself, a code does not prevent inappropriate behaviour, strategies or decisions. Only the people, particularly the leaders within a business, can do that.
The FRC has led a report into culture. One of its conclusions is the important role of the Board in establishing and delivering the right behaviours. It must be credible in the eyes of employees and stakeholders more generally. The Board needs to take decisions that are consistent with the values and strategy it promotes. To do so careful thought has to be given to how culture is measured and reported on.
Corporate culture is intangible, it is true. But culture can be measured and much information is already available to do so. Health and safety reports, customer satisfaction data, employee turnover and engagement surveys are all examples. It is what you choose to measure and how you analyse and interpret it that is important. At the same time culture is company specific and there is no one–size–fits-all. The indicators selected for assessment should be tailored to each company’s circumstances.
Our report was the result of working collaboratively in a Culture Coalition with CIMA (Chartered Institute of Management Accountants), City Values Forum, IIA (Chartered Institute of Internal Auditors), CIPD (Chartered Institute of Personnel and Development), and IBE (Institute of Business Ethics). Together we gathered insights from some of the UK’s leading industry leaders and experts to highlight observations designed to help boards and companies establish and embed their desired culture. The report has been strongly welcomed confirming just how topical the subject has become. I am happy to use this occasion to thank all the coalition partners and Independent Audit for their contributions.
In today’s event, you will hear from an eminent group of speakers who will discuss their own experiences and consider why and how setting the right culture protects and generates value for all stakeholders. The current public debate highlights specific issues including executive remuneration, stakeholder representation and shareholder voting as well as the role of business itself. We will consider how the Corporate Governance Code and guidance can offer solutions.
Before I hand over to Conor Kehoe of McKinsey, I want to stress that there simply has to be increased and continuous focus on company culture. When there is a healthy culture, the systems, the procedures, and the overall functioning and mutual support of an organisation exist in harmony. This will lead to enhanced integrity, confidence, long-term success and ultimately trust.
I hope you will leave this conference sharing this sense of responsibility.