The UK Combined Code of Corporate Governance

The United Kingdom Combined Code of Corporate governance, also referred to as simply “the code” is perceived to be a global model for good corporate practice. The flexibility of these policies allows the business to apply them when favourable to the organisation, or explain why they did not use the policy, in cases where management deems this policy to ineffectual. Either way, the “the code,” has played significant roles in ensuring that business gets the most out of the market. The code stipulated the best practices when it comes to board leadership relations, remuneration, accountability, and the relationship with other stakeholders (Shrives & Brennan, 2015). All corporations listed on the London stock exchange are obligated to use the Combined Code of Corporate governance in their annual report and accounts. The fact that this “the code” is founded on the ‘comply or explain’ framework gives the policy a rather casual outlook rather than an official one.

A study conducted by Katmon & Al Farooque (2017) on 245 organisations between 1998-2004 reported a growing inclination of compliance with the policy and the existence of frequent use of standard explanation in cases where companies did not comply with the law. Besides, the researchers identified various gaps in the enforcement and monitoring of this policy. The fact that there is are substantial gaps in the enforcement and monitoring of this policy, besides with the ‘comply and explain’ directive, renders the “the code” casual especially in the perspective of long-term organisational performance.

Aras & Crowther (2008) stated that over its years of operation, “the code” has gained a reputation of favouring shareholders as compared to directors. Therefore, a company that strongly upholds this policy is likely to attract more shareholders in the long run as compared to those that do not follow this guideline. Besides, Filatotchev & Boyd (2009) argued that firms that uphold “the code” have a good financial performance because they are compelled to invest as per the interests of their shareholders, which in the business world is a signal for goof managerial conduct. The same practice also provides the firm with the necessary resources that can be utilised in discretionary expenditure. The same authors added that there is are empirical findings that have proved a strong and positive relationship between using “the code,” and the long-term organisational success. However, Shrives & Brennan, (2015) disputed this argument by stating that it is not automatic that whenever an organisation adopts the policy it will succeed, neither is “the code” a roadmap to long term organisational performance. Moore (2001) gave various examples of some companies in the United Kingdom who have chosen the ‘explain’ path and are doing well in the market. Standard Chartered Bank and Tesla are among the most prominent company that does not totally comply with “the code.” These organisation organisations have sought a different path, yet they still attract numerous stakeholders and achieve success in the long term. However, Spear, Cornforth, & Aiken (2009) advises that for start-up businesses or rising entities to rather comply with this code as it would enhance their public image and attract more stakeholders. Therefore, one can conclude that the long-term performance of an organisation in the UK is not pegged on “the code,” rather adhering to this code enhances the image of the company in the long term.

Orange Topic

Social and Environment Reporting (SER) is a type of Corporate Social Responsibility that can be perceived as a mechanism through which entities take responsibility for their actions on the environment and the society. The reporting system is mainly voluntary and does not have a specific format on how companies should present it. Most companies have considered reporting in standalone reports in their respective company’s website, or via a hard-copy (Hąbek, & Wolniak, 2016). The main aim of these reporting procedures is to represent a company’s understanding of what a sustainable society and environment entail.

Environmental management is among the most common issue that has been discussed in most SER reports. Most companies have claimed how they are adopting environmental-friendly technologies, ‘green technology,’ among other environmental mitigation processes. As much as these strategies look good on paper, some issues have been surrounding environmental strategies deployed by organisations. Llena & Talalweh (2015) noted that social and environmental reports involve a voluntary nature of reporting on the social and environmental constraints in a business case. In other words, companies can create an inexistent environment problem and claim to solve it, besides the fact that they have documented an issue does not mean that the issue is real. Epstein (2018) added that very positive claims are made by businesses, while completely, there is no evidence for such claims. In some cases, the business might fail to report environmental hazards even when it is clear of environmental pollution. Such cases have been experienced in Mexico, (the Maqui polis case), where international companies caused devastating environmental hazards, which later had negative health outcomes to the population surrounding the area, yet there is no company that ever reported the same in their reports, nor did they acknowledge the existence of such (Sierra‐García, Zorio‐Grima, & García‐Benau, 2015).

Pink Topic

Social accounting has generally been perceived to include reporting on specific issues and reporting to some stakeholders. The topics accounted for generally relate to employee and employment themes, customer and product issues; and community and broader social issues. Wilson (2015) identified Triple Bottom Line Accounting as a model for accounting environmental and social issues. The Triple Bottom Line Accounting (TBL) implies expanding the classical company reporting framework to consider environmental and social performance besides financial performance. The authors also explained the model using triple P meaning People, Planet and Profit. The concept tries to show the full cost of development and that business ought to have a triple goal set that incorporates not only economical but also social objectives.

People

People are perceived to expand the concept of the interests of shareholders to other groups within the organisation, such as employees and the community where the entity conducts its business. Actions of the company are quantified as per its effects on various groups and from a shareholder’s viewpoint. For instance, a business that respects the rule of TBL will pay it staffs a competitive wage, maintain a safe working environment, and not engage child labour as much as these practices will decrease the profits to shared amongst shareholders (Rambaud & Richard, 2016). Besides, a business is likely to promote the community around it by giving educational prospects or a safe community to live in, for instance, the Bourneville estate that was steered by Cadbury Company.

Planet

TBL advocates for the reduction of ecological footprints through proper management of resources, consumption, and the use of energy. Therefore, a company must limit its environmental damage. For instance, a production process should only be viewed as efficient concerning the damage it causes to the environment damaging output like toxic waste elimination. The motivation for establishing a sustainable environment also means that TBL entities will not take part in depleting earthly resources. For instance, fish stocks are maintained at a sustainable level, and at the same time, the use of timber is balanced by replanting new trees to maintain future resources.

Profit

This is the usual measure of a business. A TBL corporation will try to maximise the measure to enhance shareholder revenue. A TBL entity, on the other hand, will try to balance the profit objective with the other two elements of this methodology (people and planet).

Issues around TBL

TBL means that an entity should consider the full cost of the effect on the environment. However, that cost could be seen with respect to its potential to contribute to sustainability. Therefore, moral practises relating to the organisation constraining environmental and social devastation as per their capability in these fields. As much as accounting frameworks are essential in measuring business success, sustainability also implies the desire for an action that will lead to an ethical business approach business.

As much as TBL seems like a viable idea, there is no common accepted framework that measures or implement, adding the environment and communal factors into accounting is challenging, because it is more difficult to account for environmental and social factors rather than measuring economic aspects (Alhaddi, 2015). Besides, even if accounting for these issues as possible, another complication is finding a common unit of measure for all these components. As much as the supporters of the monetisation of social and environmental factor try to resolve this element, most object to it on the grounds of ethics. For example, how can a company or business determine the price of a river or a tree.

It is indisputable that TBL is important especially, in the realm of Corporate Social Responsibility, however the limitations on the practical usage of the framework act as a huge hindrance to the official adoption of the method.

Yellow Topic

There are various reasons as to a company/ business would want to engage in social and environmental disclosure. Among the most common reasons include brand differentiation. Companies can differentiate their respective brands by disclosing their social and environmental practices. Entities like Timberland garnered success in the market due to its commercial values that supported social and environmental sustenance. The Coca Cola company provides an ideal example of how the engagement in social and environmental issues can help in differentiating a brand. For a long time, Coca Cola and Pepsi have been opponents in the beverage market; the ‘Cola Wars’ were intensive even in the international market. However, Coca Cola managed to take over due to the social and environmental approach it adopted in various countries. These approaches included environmentally sustainable packing materials, producing zero-sugar rated products for the sake of their client’s health, taking part in funding local communities, sports activities and various environmental mitigation programs.

Long term Planning: engaging in the environmental and social program helps the company to safeguard its feature and ensure its sustainability. Through partaking various social and environmental programs, companies can stop worrying about their next fiscal financial results and the impacts of the current business decisions in the future, especially in regards to environmental and social welfare.

Customer engagement; Kang, Germann, & Grewal (2016) states that companies undertake social and environmental initiatives for the sake of recognition. For example, in the past decade, Walmart established itself as a front-runner in environmental matters. In 2008, the company adopted a campaign to raise the necessary responsiveness about the environment and the product selections clients had. In this case, Walmart used environmental and social initiatives to engage with its clients in a new platform. Since the message portrayed in social and environmental campaigns is always positive, it is also a good platform for a company to engage with its potential and existing clients.

Employee engagement; just as in the case of customer engagement, companies pursue social and environmental initiatives to create awareness among the employees on what the organisation stands for (Story & Neves, 2015). For example, a business like Sara Lee made a cross-functional, worldwide sustainability Working Team to assist in creating sustainability. The same can be said about the Solo Cup Company that fashioned a Sustainable Action Network to activate workers in public service focused on the entity’s primacies.

References

Alhaddi, H. (2015). Triple bottom line and sustainability: A literature review. Business and Management Studies, 1(2), 6-10.

ArAs, G. (2016). A handbook of corporate governance and social responsibility. CRC Press.

Aras, G., & Crowther, D. (2008). Governance and sustainability: An investigation into the relationship between corporate governance and corporate sustainability. Management Decision, 46(3), 433-448.

Epstein, M. J. (2018). Making sustainability work: Best practices in managing and measuring corporate social, environmental and economic impacts. Routledge.

Filatotchev, I., & Boyd, B. K. (2009). Taking stock of corporate governance research while looking to the future. Corporate Governance: An International Review, 17(3), 257-265.

Hąbek, P., & Wolniak, R. (2016). Assessing the quality of corporate social responsibility reports the case of reporting practices in selected European Union member states. Quality & Quantity, 50(1), 399-420.

Kang, C., Germann, F., & Grewal, R. (2016). Washing away your sins? Corporate social responsibility, corporate social irresponsibility, and firm performance. Journal of Marketing, 80(2), 59-79.

Katmon, N., & Al Farooque, O. (2017). Exploring the impact of internal corporate governance on the relation between disclosure quality and earnings management in the UK listed companies. Journal of Business Ethics, 142(2), 345-367.

Llena, F., & Talalweh, M. (2015). Factors Determining Social and Environmental Performance of Islamic Companies: Analysis of Sustainability Related Reporting Practices. Jordan Journal of Business Administration, 11(4).

Moore, G. (2001). Corporate social and financial performance: An investigation in the UK supermarket industry. Journal of Business ethics, 34(3-4), 299-315.

Rambaud, A., & Richard, J. (2016). The “Triple Depreciation Line” Accounting Model and its application to the Human Capital. In Finance and Economy for Society: Integrating Sustainability (pp. 225-252). Emerald Group Publishing Limited.

Shrives, P. J., & Brennan, N. M. (2015). A typology for exploring the quality of explanations for non-compliance with UK corporate governance regulations. The British Accounting Review, 47(1), 85-99.

Shrives, P. J., & Brennan, N. M. (2015). A typology for exploring the quality of explanations for non-compliance with UK corporate governance regulations. The British Accounting Review, 47(1), 85-99.

Sierra‐García, L., Zorio‐Grima, A., & García‐Benau, M. A. (2015). Stakeholder engagement, corporate social responsibility and integrated reporting: An exploratory study. Corporate Social Responsibility and Environmental Management, 22(5), 286-304.

Spear, R., Cornforth, C., & Aiken, M. (2009). The governance challenges of social enterprises: evidence from a UK empirical study. Annals of public and cooperative economics, 80(2), 247-273.

Story, J., & Neves, P. (2015). When corporate social responsibility (CSR) increases performance: exploring the role of intrinsic and extrinsic CSR attribution. Business Ethics: A European Review, 24(2), 111-124.

Veldman, J., & Willmott, H. (2016). The cultural grammar of governance: The UK Code of Corporate Governance, reflexivity, and the limits of ‘soft’ regulation. Human Relations, 69(3), 581-603.

Wang, H., Tong, L., Takeuchi, R., & George, G. (2016). Corporate social responsibility: An overview and new research directions: Thematic issue on corporate social responsibility.

Wilson, J. P. (2015). The triple bottom line: Undertaking an economic, social, and environmental retail sustainability strategy. International Journal of Retail & Distribution Management, 43(4/5), 432-447.