“There never is a good time for tough decisions. There will always be an election or something else. You have to pick courage and do it. Governance is about taking tough, even unpopular, decisions.” ; Jairam Ramesh
In common with our first survey (Conducted June 2015), this survey has its origins in the research for a book that we (Anil Kariwala, Robert Purse & Graham Smedley) are currently writing. Rather than simply relying upon anecdotal evidence and personal experience, we decided to undertake some survey-based research and hence the survey, which was open for responses during the first half of July 2015. The survey was intended to provide us with an understanding of people’s general perceptions of Corporate Governance and how it is applied, or should be applied, to their organisation. A number of the survey questions were rather more forensic than in our first survey.
We are indebted to all the 362 respondents who contributed to the survey and we hope that the results are of interest to both the respondents and a wider readership; we have certainly found them interesting and thought provoking.
We do not know, with certainty, what country our respondents are based in. We do know that on this occasion we had responses from Mexico and Peru, which is gratifying. In our first survey we had responses from:
Australia, India, Norway, Spain, South Africa, and; United Kingdom.
The total number of respondents (n) was 362, which is more than the first survey and suggests that corporate governance is a ‘live’ issue and not just for listed/quoted companies. For simplicity’s sake we have again rounded response numbers (for each question) up, or down, to the nearest 10. To avoid ‘forced’ responses, respondents could skip questions if they so wished; the number of skipped questions was very low (8) and all for Question 8. Comments and observations on the survey are always welcome and can be sent to firstname.lastname@example.org.
Question 1 – Has your work experience been mostly public sector, mostly private sector, or a broad mix of public and private?
Although the majority (75.0%) of respondents, a significant increase on our earlier survey, had gained more than 60% of their work experience in the private sector, a significant number (90 respondents, 25.0%) had either gained their work experience mostly in the public sector, or a broad mix of private and public sectors. The disparity is slightly disappointing because we did make some effort, seemingly to no avail, to get a greater level of participation from the public sector. Unfortunately, the public sector participation level dropped by nearly 10 percentage points.
The responses were as follows:
Question 2 – How large is your organisation?
220 of the responses were from people in SME’s (<50 to 500 people) and 140 from larger (>500 people) organisations, 50 of the responses were from large (>1,000 people) organisations. Although by no means definitive, the results suggest that corporate governance is a ‘live’ issue for a wide range of organisations and is by no means limited to large organisations such as ‘listed/quoted’ companies. If you accept the broad principle that today’s SME’s represent the seed corn for tomorrow’s large/global enterprises, this is good news.
Question 3 – Where, in your organisation, does responsibility for corporate governance lie?
Questions 3, 4, 5 and 6 may well go to the heart of the issue since they are concerned with responsibility and accountability for corporate governance. Very often responsibility and accountability are conjoined, but we are of the view that they are quite different. In the context of corporate governance, responsibility can (we suggest) be delegated, whereas accountability cannot. In this survey, with admittedly mixed results, we endeavoured to separate the two issues.
The responses to this survey were markedly different to our earlier survey, albeit direct comparisons are not possible, not least because the respondent population for this survey may be entirely different. Of the overall response count (bearing in mind that respondents could make multiple choices), an overwhelming 91.7% of responses indicated that said that in their organisation responsibility for corporate governance lay with the Board/Executive. This marked tendency to attribute responsibility for corporate governance to the Board/Executive and also, to a substantial degree (66.7%), to Management appears to be off-set somewhat by the response levels for our other categories: 30.6% of responses indicated that some responsibility lay with Employees, 25% indicated that some responsibility lay with Shareholders
22.2% of responses indicated that some responsibility lay with ‘Stakeholders’, and;
13.9% of responses indicated that some responsibility lay with Regulators.
Our suspicion, which we have no real evidence to support, is that a higher response level from public sector organisations might well have changed these figures, particularly insofar as Regulators are concerned.
Question 4 – Where do you think that responsibility for Corporate (Good) Governance should lie?
The responses here were broadly consistent with Question 3. Bearing in mind that the respondents could make a number of responses, 91.7% indicated that responsibility should lie (at least in part) with the Board/Executive. A substantial percentage (72.2%) felt that responsibility should rest with Management. A significant proportion of responses (41.7%) indicated that some responsibility should lie with Employees and 33.3% indicated that some responsibility should lie with Shareholders and Stakeholders. Only 19.4% felt that responsibility should lie with Regulators. Although the rankings are unchanged, they are perhaps easier to understand when expressed (See table below) as an overall percentage response rate.
It is perhaps unsurprising that the Board/Executive and Management were ranked highest, but it is noteworthy that Employees, Shareholders and Stakeholders ranked well above the Regulators. The message appears to be that the groups most directly associated with an organisation Board/Executive, Management & Employees should carry some responsibility for Corporate Governance. The percentage for Employees may be under-stated because of the wording of the question; Executive Directors, Executives and Managers are generally also employees. The percentage for Shareholders may indicate, we emphasise ‘may’, that respondents see the stewardship role of shareholders as being somewhat diminished.
Question 5 – Do you think, assuming the law allowed it, that shareholders should take greater responsibility for Corporate Governance?
The responses to this question were interesting and may, to some degree, have been influenced by the inescapable fact that investors (including investment managers) appear to be motivated by short-term gains, rather than long-term growth. In the 1960’s shares were typically held for several years, which suggests some commitment to the long-term growth and prosperity of the organisation, nowadays shares are held for a matter of a few weeks, or months, which suggests no real long-term commitment, but rather a ‘short-termist’ attitude that may not be either consistent with, or supportive of, good governance.
50% of our respondents said no to this question, 36.1% said yes and 13.9% were not sure. There are a number of questions ‘hanging in the air’ here. What would be the impact if shareholders were required, rather than simply enabled, to take greater responsibility for corporate governance? What would be the impact if the law required that shares be held for not less than 6 months before the shareholder had the benefit of voting rights? The responses to this question may serve to reinforce the point made in Q4 regarding the stewardship role of shareholders. In his forthcoming book (Other People’s Money, Profile Books) John Kay writes, “What is often called stewardship – the supervision of management by informed investors – is not incidental to equity investment but is its primary modern role”. Taken at face value, this does not appear to be a view endorsed by our respondents.
Question 6 – Where do you think that ultimate accountability for Corporate (Good) Governance should lie?
Broadly consistent with our earlier survey 66% of our respondents felt that ultimate accountability for corporate governance should rest with the Board/Executive, which is broadly consistent with our proposition that accountability cannot be delegated (politicians, especially Ministers, please note). Of the remaining 34% of respondents, 24% chose Management, but none chose the Regulators. To avoid any confusion, in this survey we have taken Board of Directors and Executive to be broadly analogous. This is because many organisations (public and private) do not have a formal board structure and in some cases operational accountability may be quite separate from policy. In police forces the UK and many other countries, operational accountability is quite separate (rightly so) from policy.
Question 7 – Do you think that having a single, over-arching, Code of Corporate Governance (Not solely applicable to listed/quoted companies) would be helpful, or unhelpful?
In our earlier survey, less than 25% of respondents felt that the current proliferation of codes of practice was helpful and more than 35% felt that it was unhelpful. At that time we said that whilst the results could not be considered definitive, the case might be emerging for a single, overarching, code of corporate governance. The results of this survey do appear to reinforce that case with almost 70% of respondents indicating that such a code would be helpful.
Question 8 – If such a ‘Code’ were to be adopted, should it have variants?
A small majority of our respondents felt that there should be no variants, but a significant proportion of our respondents felt that there should be variants for private and public sector organisations. Whilst we believe that the principles established in an ‘overarching’ code could, indeed should, apply to all organisations, we also believe that the widely differing organisation/ownership structures of private and public sector organisations would almost inevitably lead to a small number of variants.
Question 9 – In your organisation, to the best of your knowledge, is ‘people risk’ subject to the same level of audit/scrutiny as ‘financial risk’?
The response to this question appears to differ markedly from our earlier survey, where more than two-thirds of our respondents (66.7%) felt that, in their organisation, risk management was mostly about financial risk. However, the level of audit/scrutiny of people risk does not, in and of itself, mean that an organisation’s approach to risk management gives equal importance/merit to financial risk and people risk.
Question 10 – The expression ‘People are our most important asset’ is often heard. On a scale of 0 to 5 (Where 0 is not at all and 5 is excellent), how well is principle put into practice in your organisation?
The fact that 75.1% of respondents gave their respective organisations a score of 3, or more, was welcome. However, 25% scored their organisations at 2, or less. For 11.1% of our respondents to score their organisation at <2 should perhaps be a matter of considerable concern.
Question 11 – Effective corporate governance should be framed within clearly expressed strategies and their tactical interpretation, whereby the organisation and all stakeholders should benefit. With reference to your organisation and using the same scale as Q10, how well is this practised?
No respondent scored their organisation at zero, but 30.5% gave a score of <3. The good news is that 41.7% of our respondents gave a score of >3. The results may have been skewed if organisations actually meet the criteria, but are failing to communicate effectively