Fujitsu’s board in 2016

It was not out of the goodness of his heart that Fujitsu’s European CEO Paul Patterson offered to pay compensation to those impacted by the Horizon scandal, it was out of fear, The greatest fear for  CEOs  is that their organisation turns turtle on their watch. Patterson belatedly acknowledged that Fujitsu had not done good, there had been no G in Fujitsu.

Could Fujitsu become one of the few companies that fail because of a lack of governance? I would not have credited that as a possibility till an ITV mini-series explained how the actions of a previous generation are now holding Fujitsu and the Post Office to account.

This week has seen considerable volatility in Fujitsu’s share price as realisation dawns that this affair will cost not just in compensation but in new business, Today we learn that the Commons Treasury Committee says it wants to discover the extent to which taxpayers’ money has been spent on contracts with the company since 2019.

ES and G

I wish we didn’t have to use the word “governance” and could substitute a word we all relate to and understand. G should stand for “good”.

Of course “good governance” isn’t a tautology (saying the same thing twice).

You can have bad governance and governance that puts process before people and stops an organisation from being “kind” is just that.  Too often , we hear from industrial tribunals of staff dismissed by process and compensated because of injustice.

Governance can only be good when it results in good, good behaviour and good outcomes for stakeholders. Such a moral term is of course highly subjective. We cannot agree with the suppression of justice to sub-postmasters for the greater good of the Post Office’s reputation nor can Fujitsu’s shareholder be rewarded at the expense of post-master’s basic rights.

The cost of bad governance may be paid well in arrear, as it is being paid today by Fujitsu , the Post Office and their executives, but the risk of bad governance is embedded. It can and should be priced into an organisation’s share price and it is a failure of ESG analysis that it has taken this ITV series to crystallise the financial consequence of what happened decades ago.

Who pays the cost of bad governance?

Sadly, while the cost of bad governance is often deferred, it is rarely paid by its perpetrators. Which is why we need to make sure that good governance, governance that is more than process and is “kind” – is in place today. Here is Fujitsu’s governance chart as published on its website. It talks to  complexity not values

We need to be clear to the executives of the companies we invest in , that they are judged on their actions which are under scrutiny. The scrutiny cannot just be from professional analysts, it needs to include the public – journalists are now assisted by social media in bringing poor practice to light (and praising good practice).

We have isolated the G in ESG to a point where it has been largely ignored. The climate and overall sustainability of our environment is of course a huge issue, but are the values summed up in concepts such as kindness and good, and exercised by the companies of which we are stakeholders.

Fujitsu had governance but there was too little good about it, the same can be said about the Post Office. We need to re-examine what we means by governance and ensure that it is driven by personal and public good. We cannot rely on process, we must apply ESG to people.