7. How to promote governance and transparency

Corporate governance is the system of rules, practices and processes by which a company is directed and controlled. It refers to the way in which companies are governed and to what purpose. It identifies who has power and accountability, and who makes decisions.

Governance relates to the structures, processes, standards and policies adopted by a company or organisation. Most companies are governed by a CEO and board of directors. Their primary focus is to make money for shareholders and therefore their mission is to maximise profits. Other factors, such as environmental and social impact, are considered externalities. Globalisation has resulted in a shift in production, particularly in fashion, to low income countries, such as China, India and Bangladesh, where wages are much lower and environmental regulations are rarely enforced.

Under representation of women and lack of diversity remain at senior level in companies despite gains over recent decades. Research by Korn Ferry  shows that, based on data from 55,000 participants in 90 countries, women outperform men in 11 out of 12 emotional and social intelligence categories.

Transparency in reporting, for example in terms of environmental standards and social impact, is often poor particularly when it comes to the long supply chains common in the fashion industry. It is, therefore, difficult for regulators and the public to hold companies to account. There remains a culture of secrecy in business as companies seek to maintain economic advantage over their competitors.

Generally speaking a company will need investment from a financial institution to get started and subsequently to develop. Historically, these institutions paid little attention to how ethical and sustainable a business was. This is starting to change as financial groups, including pension funds, apply ESG (environment and social governance) criteria to investment decisions.

Some financial institutions are currently going beyond the ESGs to check that company’s management teams are truly embedding their mission into operations to reflect the interests of all stakeholders.

One governance issue which has come to the fore in recent years is fair taxation. To maximise profits, companies will minimise their tax liability by locating their operations in a jurisdiction with the lowest rate of corporate taxation.

How can companies improve their governance?

Environmental and social impact need to be central to a company’s governance alongside profit. Processes and policies need to reflect this. Democratisation and diversification of the company’s governing structure will lead to better outcomes as the interests of the community will be reflected in the way the business operates. In some countries, including France and Germany, worker representation on boards is a requirement. In this country, some brands are looking to put younger people on their boards to get a different perspective of sustainability and climate action. A few companies have become part worker owned, fully worker owned or cooperatives where company strategy is determined by its workers and benefits are distributed more equally.

Environmental and social impact need to be central to a company’s governance alongside profit.

Who’s taking action

The EU strategy for sustainable textiles (EU strategy for sustainable textiles (europa.eu)) is intended to help the EU shift to a climate-neutral, circular economy where products are designed to be more durable, reusable, repairable, recyclable and energy-efficient.

In terms of transparency, a useful tool is Fashion Revolution’s (fashionrevolution.org) Fashion Transparency Index Fashion Transparency Index 2021 by Fashion Revolution – Issuu

Good on you is an app which provides consumers with thousands of brand ratings, articles and expertise on ethical and sustainable fashion. It provides people with the impact of brands on people and planet. TrustTraceoffers a state-of-the-art digital platform for product traceability and supply chain transparency. Just Good Work is an independent, collaborative platform, which seeks to draw others in and provide a tool to promote or enhance existing good work, rather than re-inventing the wheel.

Certified B Corporation companies are a new kind of business that balances purpose and profit. They are legally required to consider the impact of their decisions on their workers, customers, suppliers, community and the environment. BCorp is a community of leaders, driving a global movement of people using businesses as a force for good.

There are many third party certifications that companies can sign up to. Some relevant to the fashion industry are the Global Organic Textile Standard (GOTS) and Worldwide Responsible Accredited Production (WRAP). GOTS was developed by leading standard setters to define world-wide recognised requirements for organic textiles. From the harvesting of the raw materials, environmentally and socially responsible manufacturing to labelling, textiles certified to GOTS provide a credible assurance to the consumer. WRAP is an independent, objective, non- profit team of global social compliance experts dedicated to promoting safe, lawful, humane and ethical manufacturing around the world through certification and education. WRAP certification is for the factories where goods are made, rather than the end product.

SA800 Sociability International social responsibility standard is a code of conduct verification and factory certification program that enables manufacturers to demonstrate social compliance to buyers. Largely for apparel, textiles and manufacturing, it is the leading social certification for factories to have. It shows fair treatment of workers and abides by labour provisions within the Universal Declaration of Human Rights and International Labour Organization.

Danone has announced that it will adopt a French legal corporate mission and have an independent committee oversee and report on its social, societal and environmental goals. Introduced by French law in 2019, “Entreprise à Mission” defines a company which better aligns their business model to include wider social and environmental fields. The move is part of Danone’s ambition to achieve global B Corp status, in which companies that meet certain social and environmental criteria are awarded.

Fair Trade is a system designed to support producers in the global South achieve sustainable and equitable trade relationships. Members of the fair trade movement add the payment of higher prices to exporters, as well as improved social and environmental standards. The brand Chloe has recently incorporated a Fair Trade element to its portfolio. There is a growth in social enterprises, organisations that are set up specifically to benefit their members and distribute any surpluses in a fair and equitable way at the same time involving them in the strategy and management of the organisation. Fair Trade .goes a long way in addressing inequality in business in its Fair Trade principles.  The World Fair Trade Organisation (WFTO) is challenging the status quo; 50% of Fair Trade member company CEOs are women compared to the industry average of 8%. In terms of senior managers, 54% have women in these roles compared to 24% in industry and 51% have women on their boards compared to 12% in industry.

Fair Wear works directly with its member brands, factories, trade unions, NGOs and governments, to bring together stakeholders to create changes that make a lasting impact on working conditions everywhere.

Democratisation and diversification of the company’s governing structure will lead to better outcomes.

High end department store John Lewis is an employee-owned mutual organisation known as the John Lewis Partnership and is the largest co-operative in the United Kingdom. In 2018 Riverford Organics changed to being employee owned. Their new governance structure includes a democratically elected co-owner council representing all areas of the business. Two co-owners are also elected to sit on the Board of Trustees – the ultimate guardians of Riverford’s ethics and purpose. The company is also certified BCorp.

The group Better Business Act is bringing together a broad and growing coalition of leaders from across all sectors and regions of the UK. Their mission is to change UK law to make sure every single company in the UK aligns the interests of their shareholders with those of wider society and the environment. Their objective is to amend Section 172 of the Companies Act in line with these principles. To date over 800 companies have signed up.

The Global Reporting Initiative (GRI) standards have been strengthened so they deliver the highest level of transparency for impacts on the economy, environment and people,

with a major update to the very foundation of the world’s most widely used sustainability reporting standards, the Universal Standards, and the introduction of the first GRI Sector Standard.

Our tax and financial systems are our most powerful tools for creating a just society that gives equal weight to the needs of everyone. But under pressure from corporate giants and wealthy individuals, governments have programmed these systems to prioritise the wealthiest over everybody else, wiring financial secrecy and tax havens into the core of our global economy. For more information, check out Tax Justice Network which works to repair injustices by inspiring and equipping people and governments to reprogramme their tax and financial systems.

Suggested reading

Fair Trade for all (Joseph Stiglitz and Andrew Charlton)

2021 Remake Fashion Accountability Report 

Suggested viewing

Join the Business Revolution – YouTube

Group of people sitting around a conference table.