In this fourth instalment of our five-part series on ESG reporting, we explore the governance factors of ESG that are relevant to recruitment businesses.
In our fourth article on ESG reporting, we’re exploring governance and how it can help to identify risks and opportunities for recruitment companies. Firstly, we’ll take a look at what corporate governance is and why it’s important, before outlining what you can do to improve in this area.
The governance component of ESG reporting covers a company’s internal structure, policies and procedures. Essentially, it is the mechanism that allows the senior management, such as a board of directors, to supervise a corporation, take accountability and ensure they uphold the corporation’s key values. Some factors that are included within this are board structure, diversity and compensation, but also areas such as codes of conduct.
The history of corporate governance is as old as business itself, but the modern system has its roots in the aftermath of the Wall Street Crash of 1929, which was blamed on management failures. More recently, the banking sector witnessed a similar tightening of rules following the 2008 financial crisis.
ESG considerations are now an accepted element of mainstream corporate culture, with long-term sustainability and climate change being highlighted as financial risks. While much of the focus has been on these environmental aspects, governance should be regarded as a vital pillar, not just to avoid penalties or sanctions but also to reduce your risk exposure and to help your business thrive.
One of the main issues covered by governance is the company’s list of priorities. Looking to maximise returns for shareholders is part of running a business, however, for long-term success, there should be other priorities that focus on the company’s values and other non-financial objectives.
Governance has to reflect the changing attitudes of society towards environmental, social and sustainability issues. Whilst the three areas of ESG are interconnected, good corporate governance can be the glue that binds them all together.
One of the main areas that we’ll focus on in this article, as it’s an area that needs addressing in recruitment, is diversity in the boardroom. Taking ethnicity as an example, according to data published by the FRC, more than half of FTSE 250 companies (52%) fail to mention ethnicity in their board diversity policy, and most of the FTSE 350 do not set measurable ethnicity targets.
Research undertaken by Cranfield University’s School of Management, also found that whilst 11% of FTSE 100 and 4% of FTSE 250 companies plan to increase ethnic diversity in their succession plans, most focus on general recruitment rather than senior management.
To address this failing, the FRC expects much-improved reporting by companies under the new UK UK Corporate Governance Code which promotes diversity in appointments and succession plans, including gender, social and ethnic diversity.
Gender inequality at board level is also a particular issue in recruitment. As we shared in a recent article, 30% of recruitment firms have less than 5% female leaders at board level. This is despite many of them having good representation at an all-staff level.
Whilst your business may not (yet) be a FTSE 250 company, SME’s should all consider their board diversity and appoint the right senior leaders, both in terms of culture and skillset, based on merit so that the company has the best foundations to grow.
Other examples of the types of practices that fall under governance include:
Read our next article…
In our final article of this five-part series, we’ll summarise the next steps and what your business can do to start reporting on ESG.
If you own a recruitment business and are seeking support about ESG reporting, call our friendly experts on 0845 606 9632 or email hello@recruitmentaccountants.com.
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