The idea that the only social responsibility of business was solely to increase its profits was popularised by economist Milton Friedman half a century ago. It’s safe to say the times have changed! We reached a tipping point in 2019 with more organisations acknowledging the need for a more “conscious capitalism” that extends the pursuit of shareholder value to one based on inclusivity, sustainability and purpose.
Governments are pushing an agenda of corporate governance reform designed to ensure that organisations operate in a manner that benefits employees, customers and shareholders.
In the workplace, traditional water-cooler chats have been replaced with online conversations on social media and Glassdoor, where activist employees openly express opinions about their company, it’s culture and even their stance on controversial issues such as sexual harassment or the environment.
Even in the investor community there’s increasing pressure to look at so-called ESG factors (environmental, social and governance) with the battle to win and retain the next generation of private clients (wealthy millennials). They are the group that cares the most about sustainable investing.
Bringing culture and happiness into the boardroom
There are now huge societal pressures forcing business leaders to embrace wider conversations in the boardroom outside of just the traditional profit and loss numbers.
EY’s recent research with CFOs of large global organisations showed how much an impact these changes have had on their thinking. It highlighted that three quarters (79%) of CFOs said investors wanted more insight into corporate culture and 74% said investors use non-financial information in their decision-making.
No longer seen as a “soft” issue that has little to do with the value of organisations, 83% of respondents also believed that a healthy corporate culture where values/behaviours are consistently embraced is critical to building trust, and helps reduce risk.
As we enter a new decade, have workplace culture and trust become critical priorities that shape an organisation’s priorities in the boardroom? We spoke to Paul Green a finance leader and Partner at the growth factory and Julian Huxtable, a Partner at Charme Capital Partners to gauge their opinion:
How important is it to you that the businesses you work with have a thriving culture?
Paul: “As a finance leader, who’s worked in the creative, charity and technology sector I fervently believe that it’s critical any business I work with has a thriving culture. It not only helps to drive business growth by creating happy employees and happy clients but ensures people see the bigger picture and purpose of their organisation.
“To thrive, people must feel incentivised to go the extra mile and have a strong affinity with their team, leaders and customers. Often, I’ve seen a business fail because there is a weak or contradictory culture, and in an era when recruitment and retention remain one of the biggest risks and costs for most organisations building a thriving culture can only mitigate this.”
Julian: “As a private equity business, it’s critical to us that the businesses we invest in have a thriving culture, as we believe it’s one of the key ingredients for building a scalable business model. We’re attracted to companies which have a clear vision, driven by a strong leadership team who embrace and consistently demonstrate shared values and behaviours. Building and sustaining that culture is the key pillar of an effective people strategy; as an investor it helps to reduce our risk and create focus on creating long-term sustainable value.
“A great example of a company we work with who embodies this philosophy is the Witherslack Group, who provide specialist education and care for children and young people. One of the key performance indicators for their business is the consistent measurement of how happy their people are at work. The leadership team not only share the feedback openly with their people, but act upon it to ensure that their continued expansion is built upon a strongly shared vision and culture.”
Do you believe that there will be an increased focus on non-financial information such as culture in corporate reporting in 2020 and beyond?
Paul: “I truly believe that in 2020 and beyond we will see an increased focus on non-financial information such as culture in the boardroom which will be reflected in corporate reporting. You only have to look at the sharp decrease in share price when a leader leaves, plus the rapid decline of organisations where a toxic culture prevails – for example Uber, WeWork and Ted Baker.
“An organisation without its people is just an empty office and brand name of little value to shareholders or customers.”
Julian: “I am convinced that there will be increasing scrutiny on non-financial information both in the due diligence stage of an investment and as a key element of corporate reporting moving forward. This will be based on establishing a wider balance between financial and non-financial information and ensuring that there is a clear focus on building long-term sustainable value.”
Give the people what they want
It’s clear to see there is a big need and desire for culture, happiness and other “non-tangible” metrics to be reported on in the boardroom.
When you report on your people and combine it with the traditional P&L report – you will gain a holistic view of your organisation. This will empower you to make meaningful and empathetic decisions on all aspects of your business.