Stewardship
In 2008 Tomorrows Company published “Tomorrow’s Owners – stewardship of Tomorrow’s Company”. This was a review of the principles of good ownership from private equity and family business to institutional investment in listed companies. The report concluded that shareholders had four roles – being a member, a provider of finance, a trader of shares and a steward, but that in listed companies it was this fourth role that was being neglected. The publication of this report coincided with the failure of the banks in October 2008. Sir David Walker picked up the theme of stewardship in his 2009 report for the UK government on the governance of banks and other financial institutions. This has led to the development of a stewardship code for fund managers.
The Tomorrow’s Company concept of stewardship
While the stewardship debate has gravitated towards the responsibilities of investors, Tomorrow’s Company continues to see stewardship as a joint activity between the owners and directors a business.
As the 2008 report said
“The rights and duties of shareholders give them a stewardship role alongside that of directors in protecting the long-term health of the company and promoting the long-term value of the investment. Directors are the effective controllers of companies. They are entrusted by shareholders with the management of the company on a day-to-day basis and are accountable to - and can be influenced by – shareholders. This idea that the core responsibility for stewardship is shared between shareholders and directors is, we believe, very important.”
The Tomorrow’s Company definition of stewardship
‘The active and responsible management of entrusted resources now and in the longer term, so as to hand them on in better condition’.
The Tomorrow’s Company Stewardship Principles
Principle 1. Setting the course: attention to clarity of purpose, roles and relationships
Stewardship exemplars insist on clarifying purpose and respective roles and relationships. This includes being transparent about what the organisation is for, what it believes, and to whom it is accountable. The focus is on the arrangements for accountability, and how the different parties which are needed to make stewardship effective will work together and whether they are investing sufficient resources to achieve this. This principle reflects the need to insist on clarity, transparency and consistency in how the company is run.
This means being involved, thorough, honest and uncompromising in upholding the importance of stewardship - defining and publishing the purpose and philosophy of the organisation, making a clear, public statement setting out the relationships between the owners, the organisation and its other stakeholders, and the roles and responsibilities of each party. And it means being both open about and faithful to these commitments, and being accountable for the long-term as well as the short-term health of the company.
Principle 2. Driving performance: attention to performance and improvement
Unless an organisation gets the basics right, it will not survive. Stewards have an eye on the current and future operational performance, looking at the organisation’s approach to all its relationships and resources and asking whether they are making the most of the opportunities available. They are making sure the organisation is as robust and resilient as it can be and that it is in a position to respond quickly to the unexpected. Good stewards are always looking for improvement – better products and services, better relationships, better suited to the environment. No matter how good things are there is a sense of confident restlessness.
Good stewards engage in uncomfortable conversations that challenge the status quo and the assumptions that underpin the business model. They insist on evidence. They encourage constructive challenges to current practices and adapt readily when required. Outstanding performance is a cause for celebration, but also for challenge, so that the underlying levels of risk are understood and managed.
Principle 3. Sensing and shaping the landscape
Good stewards look outwards. They act on the basis that they are a part of a system that can be influenced. They recognise that the success of the organisation is bound up with the health of its surroundings. Good stewards engage with key stakeholders, picking up external perspectives. Through this engagement they are aware early of new threats and opportunities that are emerging from the external environment. They handle challenges effectively, acknowledging that others have positive contributions and testing all perspectives for their impact on the future of the company. They see the connections between the prosperity of the organisation and its external context – in terms of training, talent, social stability, environment and all those other factors that affect its capacity to operate, and get involved in those issues. They safeguard the organisation by seeing it as part of something bigger and are clear of its place in the external environment.
This means achieving the organisation’s objectives through paying attention to more than the narrow interests of one group of stakeholders. It means seeing the organisation as something more than the tangible benefits that can be taken from it – and believing that the more you put into an organisation, the more you and all its stakeholders will get out. Some people would describe this principle as enlightened self-interest; others express it as ‘we are all in this together’. Others have seen this as being a force for good. Whatever the label, this principle is not about the sacrifice of corporate interests to those of others: it is about the intelligent pursuit of self-interest through mutual advantage, and the fresh opportunities and improved risk management that come from a heightened peripheral vision.
Principle 4. Planting for the future: coherence over time
While maintaining a relentless focus on the organisation’s current health, good stewards balance this with a sense of its future potential and health. Short-term survival is a part of stewardship, yet there is a consistency and coherence between the actions taken in the short-term and the long-term objectives.
This is not about saying that the long-term is more important than the short-term. Organisations and their boards need to balance both. This principle is about recognising that short-term and long-term success are both important, and ensuring an adequate focus on, and investment in, talent and infrastructure for the future without unduly neglecting the present. Stewards are aware that a series of short-term decisions can undermine a long-term objective and act to maintain the consistency between the short- and long-term.
In the company context, this can sometimes mean boards being robust in resisting the pressure from some investors for premature distribution of profits. For investors, this can sometimes mean supporting the directors’ desire to invest in areas which may not immediately be linked to rises in the share price – like talent or leadership development, or health and safety. It may sometimes mean stimulating the company to grow organically or through acquisition, but it could also mean restraining the ‘empire building’ tendencies of acquisitive CEOs whose desire to run a bigger company may not be in the interests of shareholders.