Stakeholder collaboration will help businesses and society thrive
The fate of companies in 2021 was to face two difficulties. At the start of the coronavirus pandemic last year, some economies were already in a weak state. But restrictions since imposed by governments to stop the spread of the virus have only made matters worse.
At the start of the pandemic, I coined the term “coronanomic», To reflect how the economic and health crises were linked. Businesses have been in survival mode, and boards around the world are only thinking in the short term – how to avoid liquidating their businesses.
If a business were to be liquidated at that time, the sale of tangible assets would not reach market value and human capital would be scattered.
When we achieve population immunity through global immunization, economies will return to prosperity. For now, however, the mindset of administrators must be one of integration, collaboration and compromise, and they must act accordingly in their dealings with stakeholders. Business leaders need to understand the needs, interests and expectations of stakeholders and the challenges they have experienced during coronary heart disease. Likewise, stakeholders must take into account the challenges that companies have had to face.
This is why the global economic, social and environmental goals set by the UN have become so important. From 17 sustainable development goals agreed by world leaders in 2015 is one regarding partnerships. This has led to the rapid development of Covid-19 vaccines – and such collaboration between stakeholders and businesses is essential while economies are in survival mode.
A council, however, cannot ignore its duty to think long term. In this regard, the two critical risks are climate change and cybersecurity. Administrators need to integrate them into their business models and longer-term strategies as economies gain momentum.
At least, finally, providers of frameworks for economic, social and governance (ESG) standards are collaborating after years of seeing each other as competitors. This was scandalous as they all strived to improve the results for the company, by making company reports more informed and by making accountability more transparent.
Now, the International Financial Reporting Standards Foundation (IFRS) has agreed to broaden its mandate to include sustainability issues and to create an International Sustainability Standards Board (ISSB) alongside the International Accounting Standards Board ( IASB). This will give ESG standards the same reliability, consistency and rigor as the IASB’s financial standards, which are applicable in 144 jurisdictions around the world.
The IFRS doesn’t have to reinvent the wheel, but it can learn from these providers of collaborative frameworks to set sustainability reporting standards for all 144 jurisdictions.
Sustainability has two aspects. First, there are the effects of a company’s activities, products or services on the three critical dimensions of sustainable development: economy, society and the environment. Then there are the effects of these dimensions on business – for example, the economic and social impact of the pandemic is being felt by businesses, as is climate change.
Everything indicates that the ISSB standards will look through a value creation lens: namely, the effects of these three critical dimensions on a business.
At the same time, if a company wanted to report on sustainability issues to show the effects of its activities on these three critical dimensions, it could use Global Reporting Initiative standards.
Corporate reporting once focused on the financial aspects under the shareholder primacy doctrine, but over the past two decades they have focused more on creating, maintaining or eroding corporate value. business.
Corporate governance must also change – from a mindless checklist-based operation to a conscious results-based approach, in line with integrated or strategic reporting, as it is called in the UK. The Sustainable Development Goals are also results-based – for example, clean water, clean production and quality education.
In the area of corporate governance, the four essential outcomes that external stakeholders should see are: an ethical culture with effective leadership; confidence in the business by the community where the business operates; adequate and effective controls within the company; and sustainable value creation.
If the rational conclusion of the stakeholders is that a company achieves these four outcomes, it can be said that the company practices good governance. Effective leadership means that directors, individually and collectively, recognize that they represent the conscience of a company. A company, as an artificial entity, cannot have any consciousness itself. When something goes wrong, therefore, society should direct its anger towards business leaders rather than companies.
Just as corporate thinking has shifted from shareholder primacy to creating enterprise value for the long-term health of the business, a results-based approach to corporate governance would be in the business. long-term interest of all stakeholders.
Mervyn King is Chairman Emeritus of the International Integrated Reporting Council and former Justice of the Supreme Court of South Africa