Good governance essentially boils down to one phrase – “the act of doing the right thing” – according to Man Group Chairman Ian Livingston.
“If you treat governance as some sort of side activity, it’s not going to work; unless you treat governance as a core part of your business, you will not get the right results,” Livingston said in a podcast hosted by Jason Mitchell, Co-Head of Responsible Investment at Man Group. “This sense that you can do good and be good, it starts with people within the business.”
Livingston also argued that good governance requires boards to look closer at how they are prioritising relationships with different stakeholders. “When you hold an AGM on a wet Wednesday in London, you possibly do not get the widest range of investors coming to visit,” he said. “Most boards today spend a lot of time talking about shareholders, a fair amount of time talking about customers, a bit less talking about employees and very little talking about suppliers and society. And they are all really important groups, and we’ve got to, in the long term, service them all properly.”
Expanding on this theme, he pointed to the need for companies to ensure that employees benefit from corporate success via schemes such as share incentive plans (‘SIPs’), rather than just being exposed to the consequences of corporate failure through job losses. Indeed, while about two-thirds of FTSE 100 companies offered SIPs as of April, only 56% of FTSE 250 firms do the same1.
Figure 1. Percentage of UK Companies With SIPs
Source: Man Group, Equiniti, as of April 19, 2018.
Livingston also singled out the pressure to deliver results quarterly as a contributing factor to short-termism in governance and argued for the introduction of reporting every six months. “Businesses do not go in one direction every quarter – you get bad weather if you are a retailer, you get single customer movements,” he said. “There is still too much pressure on companies to make things look like a straight line, and this makes them do things like hold back on investment and not do the right long term thing for the sake of quarterly performance.”
To listen to the full podcast go to man.com/ri-podcast