New UK Corporate Governance Code places greater emphasis on employee engagement

New UK Corporate Governance Code places greater emphasis on employee engagement

Thursday, January 31, 2019

The focus of the UK Corporate Governance Code now extends to explicitly include direct interaction with stakeholders – other than shareholders – as being critical to the long-term prospects of a business.

Given the growing popularity of appointing employees representatives to the board, and in the wake of a growing number of corporate scandals, a greater emphasis on employee interaction may not come as a surprise, and it reinforces what we here at Personal Group believe strongly: that meaningful engagement with employees is key to a business’s bottom line.

The new code highlights the growing recognition from investors and regulators that employee interests must be considered as corporate governance best practice, and an addition to long-term value creation. Few would argue against effective employee engagement being  a win, win situation and employee views can be hugely informative to a board in terms of the operational effectiveness and strategy development of the business and are therefore invaluable, if listened to. Engaged employees are those fully invested in their company, its values, and understand what part they play in the overall mission. They are the ones who actively think about the firm’s processes, identify improvements and can uncover business risks at an early stage.  Ensuring employees’ voices are heard – and demonstrating that to both your stakeholders and the wider market – is a competitive advantage and makes good business sense. 

To genuinely achieve this, provisions must be put in place to ensure that staff views are gathered effectively and efficiently, and that employees can raise concerns in confidence. Companies must also show that not only do they have tools in place to ensure open and transparent communications, but also how they are engaging with their employees. By giving all employees a voice through better two way communications and more effective employee engagement programmes, organisations can both demonstrate how they are addressing stakeholder engagement while improving employee productivity and overall business performance.

From 2019 Boards will have to show how they have fulfilled their responsibility of enhancing and protecting arguably their biggest asset – their workforce. This is something that businesses will need to report against in materials, including in their annual report. This is an important point, because by taking steps to meet these regulatory expectations and importantly, report objectively against those expectations, companies will gain trust and ensure that meaningful employee engagement is taking place.

Through the broadening of reporting requirements under the Code to include a focus on a greater number of stakeholders rather than just shareholders, Boards will be forced to develop a broader understanding of their employees and foster a robust culture, beyond the scope of financial performance and strategy. There are already tools in place to help foster this culture and provide the means to increase communications. Tools such as Hapi, a cloud-based employee  engagement and communications platform and app from Personal Group, encourage improved employee relations and communications by providing the means to reach employees wherever they may be, something which is essential with a dispersed and increasingly mobile workforce.