Stakeholder collaboration will help the company and society flourish
The company’s predicament in 2021 has to overcome two difficulties. At the beginning of the coronavirus pandemic last year, some economies were already in a state of weakness. But since the government imposed restrictions on preventing the spread of the virus, the situation has only gotten worse.
In the early days of the pandemic, I created “Coronary“In order to reflect how the economic crisis and the health crisis are intertwined. The company has always been in a survival mode, and boards of directors around the world are only considering how to avoid business liquidation in the short term.
If the company is to be liquidated at this time, the sale of tangible assets will not achieve market value, and human capital will be dispersed.
When we gain population immunity through global vaccination, the economy will resume its booming model. However, for the time being, the mentality of directors must be a kind of integration, collaboration and compromise, and they must take corresponding actions in their relationships with stakeholders. Company directors must understand the needs, interests and expectations of stakeholders, as well as their suffering during the corona period. Similarly, stakeholders need to consider the challenges the company must deal with.
Therefore, the global economic, social and environmental goals set by the United Nations have become so important.between 17 sustainable development goals The agreement reached by world leaders in 2015 is an agreement on partnership. This has driven the rapid development of the Covid-19 vaccine-when the economy is in survival mode, this kind of cooperation between stakeholders and the company is essential.
However, the board cannot ignore its long-term thinking responsibility. In this regard, the two key risks are climate change and cybersecurity. When the economy recovers momentum, directors must incorporate it into their business models and strategies over the long term.
At least, in the end, the framework providers of economic, social, and governance (ESG) standards began to cooperate after years of competing with each other. This is outrageous because they are responding to the issue of improving social outcomes by improving the visibility of company reports and the transparency of accountability.
Now, the International Financial Reporting Standards (IFRS) Foundation has agreed to expand its scope of responsibility to include sustainability issues, and has established the International Sustainability Standards Board (ISSB) together with the International Accounting Standards Board (IASB). This will enable ESG standards to have the same reliability, consistency and rigor as the IASB financial standards, which are applicable to 144 jurisdictions worldwide.
IFRS does not have to redesign the wheels, but it can learn lessons from these cooperation framework providers and establish sustainability reporting standards for 144 jurisdictions.
There are two aspects to sustainability. First, the company’s activities, products or services will have an impact on three key aspects of sustainable development: economy, society and the environment. Then, these aspects have an impact on the company. For example, the economic and social impact of the pandemic can be felt by the company, and climate change can also be felt.
There are various signs that the ISSB standard will be observed from the perspective of value creation: namely, the influence of these three factors Key dimensions of the company.
At the same time, if a company wants to report sustainability issues to show the impact of its activities on these three key dimensions, it can use Global Reporting Initiative standard.
Under the principle of shareholder supremacy, corporate reporting used to focus on financial aspects, but in the past two decades, it has been focused on the creation, protection or erosion of corporate value.
Corporate governance also needs to change-from unconscious checklist operations to results-based thinking methods to be consistent with comprehensive or strategic reports, which is well known in the UK. The Sustainable Development Goals are also based on results, such as clean water, clean production and quality education.
In corporate governance, the four key results that external stakeholders should see are: an ethical culture with effective leadership; trust and confidence in the company in the community where the company operates; adequate and effective control within the company; and sustainable Ways to create value.
If the reasonable conclusion of stakeholders is that a company is achieving these four results, it can be said that the company is implementing quality management. Effective leadership means that directors, both individually and collectively, recognize that they represent the conscience of the company. A company as a human entity cannot have a conscience in itself. Therefore, when problems arise, society should send anger to business leaders, not the company.
Just as corporate thinking has changed from the primacy of shareholders to long-term and healthy corporate value creation, results-based corporate governance will be in the long-term interests of all stakeholders.
Mervyn King is the honorary chairman of the International Comprehensive Reporting Council and a former judge of the Supreme Court of South Africa