Phil Murphy: “Corporate ‘transparency’ has moved dramatically up the agenda.”

Phil preferred portrait - Summer 2016Phil Murphy is the former Vice-President and Global Head of Government and Public Affairs for BG Group; Director and Founding Partner of Vidhya, the political and reputational risk management company. In this guest blog he explains why transparency is the foundation of sustainable, successful business strategy.

OVER the past 10 to 15 years, there is no doubt in my mind that the biggest change for companies has been the increasingly sharp focus on ethical and reputational performance. Corporate ‘transparency’ has moved dramatically up the agenda.

There have been formal legislative and regulatory developments and, in some sectors, ‘voluntary’ codes that effectively became mandatory requirements. There has also been a tangible increase in scrutiny from the media, the public and civic society groups. There is a growing trend of ethical shareholders prepared to require their companies to behave responsibly and in a transparent, consistent way. The trajectory is indisputable. And I would argue that, even if the new President of the USA is threatening to lift some of the regulatory burdens on companies, this trend will not be reversed. The focus on corporate behaviour will be sharper, not fuzzier.

In my sector for the last 15 years – oil and gas – legislation like the Foreign and Corrupt Practices Act in the US, the Bribery Act in the UK and, sectorally, voluntary agreements such as the Extractives Industry Transparency Initiative (EITI) and ‘publish what you pay’ deals have taken time to have an impact but they have begun to shape the way in which companies conduct their business.

There is a long way to go. The presumption of a significant percentage of society is still that big business will break the rules, if it thinks it can get away with it and make more money. The effects of the Lehmann Brothers crash and the broader fall-out from the financial crisis reinforced that view. And, even in the recent past, we have seen a senior pharma executive jailed in China for alleged bribery, a mining company whose lax standards led to multiple deaths and entire communities being swamped with waste, and an internationally renowned engineering company paying fines in excess of £600m for corrupt payments. So, though the pressure to behave transparently and ethically has increased, there is still a way to go.

Some of us behave in a corporate context in an ethical way because we are instinctively kind to animals, small children and our employees. But, even those with less honourable instincts should now acknowledge that any company of any size that wants to prosper needs to demonstrate that it can explain and defend the way in which it runs its business. And the key point here is that, while no-one can deny that regulators are capable of over-regulating, increased requirements on companies to behave transparently are actually forces that we can harness to help us build better, more efficient and more valuable businesses. What do I mean by that?

Well, the company that thinks deeply about the implications and requirements of this heightened scrutiny will carry out a complete overhaul of how it does business, how it treats its employees and how it works with stakeholders and the communities it works alongside. It will spell out its vision and its values and it will introduce and adhere to a set of standards that will ensure the company and its staff stay ‘clean’ and do not cut corners. And what happens if there is clarity of direction, happy staff and strong relationships with stakeholders and local communities?  Staff are committed and loyal and know what is expected of them. The company is a popular corporate neighbour. The commercial direction of travel is clear. Success becomes much easier to achieve.

And, while it can be tempting for the smaller or the new start-up to think that these are lessons only for the larger companies, the opposite is true. This kind of ‘transparency’ is something that is critical to the success of any company of any size. In fact, the best thing a start-up or SME can do is to start with a clear analysis of how it plans to operate, how it deals with its stakeholders, how it builds relationships with the communities it works with or alongside.

There is, of course, a strong temptation to start from a point where a firm’s management pats itself on the back and says, “We’re great people with the right motives.” A better approach is to start with zero assumptions and spend the time at the very beginning to spell out precisely what its approach will be to staff, customers and broader stakeholders.

And, when a firm has been up and running for a while, the value of road-testing these approaches and checking that they are still real, valid, fit for purpose and being implemented consistently cannot be overstated.

So by all means jib against over-regulation. But transparency can be our friend. Transparency can be the bedrock of a business that will succeed and keep on succeeding.

 

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