Peter Vicary-Smith of Which? argues that public representation is the cornerstone for good corporate governance
The prime minister's speech to the CBI last week was met by a raft of criticism that she has backtracked on plans for corporate governance reform, particularly consumers on boards.
However, if we look beyond the headlines and take stock of what changes are in the pipeline, the prime minister is on the right track and it is time for business to pick up the mantle.
Corporate governance reform is firmly on the agenda, and the prime minister has rightly committed to hear the voice of consumers at board level.
The government seems to understand there has been a failure of proper checks and balances that ensure good governance and keep businesses under scrutiny.
After all, if boards had proper regard for the consumer, would the PPI scandal have ever happened? Would train companies fail to give their passengers the best ticket? And would BHS pension holders have been taken to the cleaners?
On the eve of becoming prime minister, Theresa May said that she wanted to see changes in the way big business is governed to stop bad behaviour and a failure of accountability.
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In the last fortnight she has used her Mansion House and CBI speeches to reiterate this point: businesses must take more responsibility for their staff, their shareholders and of course their customers. She is committing to action, telling the CBI that business must make changes to improve consumer confidence.
We expect the forthcoming government Green Paper to throw this debate open and lead to tangible change for consumers, as both customers and members of the public. It should be an opportunity to hear people’s views on how businesses can better engage with their customers and tackle corporate governance.
At Which?, we will be making sure that consumers’ voices are heard and recognised as the cornerstone for good corporate governance as the government develops its strategy. Legislation already sets out the current rules for board directors, who have explicit responsibility for having regard to their customers, as well as other stakeholders, under section 172 of the Companies Act 2006.
And at Which? we see examples of good business practice every day. Over the past ten years, I've handed out awards to banks, such as First Direct, and supermarkets, such as Waitrose and Aldi, who deserve Which?'s praise because they listen to their customers, understand what they want and deliver it.
Change starts at the top with the right board culture. Board chairs should act on the prime minister’s call and make sure the consumer's voice is better heard.
Chairs, particularly of companies that receive government support or have a broader role in society, such as banks and train companies, should ensure that at a minimum they have a suitably qualified director who is responsible for ensuring the board hears the perspectives of consumers as a whole - taking a lead on this as directors take a lead on remuneration, risk and corporate social responsibility.
This is just one step that businesses can take to heal themselves. This is not just a matter of responsible capitalism for the sake of political correctness. There's good business sense to good board behaviour too.
But for those boardrooms that continue to ignore the letter and spirit of section 172, then more radical action must be taken. Shareholders and the government together must do more to hold chairs and directors to account. The government has a great opportunity to seize here - to change corporate culture from the top and use the Green Paper to gauge how section 172 of the Companies Act should be reformed.
But the gauntlet has been thrown down to businesses to act immediately by listening to and delivering what customers want, to remember that running a business is a responsibility. Let's hope boards across the country are ready to pick it up.
Peter Vicary-Smith is the chief executive of Which?, brand name of the Consumer Association, a charity that promotes informed consumer choice.
Main image by Legrand - COMEO