The directors should lead by example in order to encourage good behaviours throughout the organisation.
So says the Financial Reporting Council in its introduction to its updated UK Corporate Governance Code. Key changes to the code include shareholder engagement, remuneration, going concern, risk management and internal control. But it is the emphasis which the FRC place on the role of the leadership which particularly caught our eye.
Moving from the introduction into the main body of the code, which takes effect for all reporting periods starting on or after 1 October 2014, and once again the role of leadership in setting the tone of the organisation springs out. Whilst this is hardly surprising given that corporate governance is largely in the hands of the leaders it is clear that leadership has well and truly moved on from remote dictatorship to being a position of responsibility which guides ethos and values.
Leading by example, good standards of behaviour, maintaining mutual respect and openness; all appear in the new code alongside a recommendation to embrace diversity. The code changes are designed “to strengthen the focus of companies and investors on the longer term and the sustainability of value creation” but as the FRC says with good standards of behaviour permeating the organisation the result is the prevention of misconduct and unethical practices alongside “the delivery of long-term success.”