15th Feb 2017
The Institute of
Customer Service is an independent not for profit professional membership body,
with over 500 organisational members. Our purpose is to help organisations
strengthen their business performance by focusing on raising the standards of
their service delivery which in turn will improve their customers’ experiences.
We welcome the Government’s focus on improving the public’s
trust in businesses by looking to improve corporate governance. The Government
is right in its assertion that good corporate governance is about more than the
relationship between senior players within an organisation and there is growing
evidence to suggest customer satisfaction is intrinsically linked to organisational
reputation and the trust consumers have in organisations.
Research by The Institute of Customer Service demonstrates that customer
satisfaction, loyalty, recommendation and trust are highly correlated. For
example, our most recently published UK Customer Satisfaction Index (UKCSI)
demonstrates that of the customers who score an organisation between 8 and 9
out of 10 for customer satisfaction, 48% give that organisation a 9 or 10 out
10 in terms of trust. This rises to 96% if the customer scores between 9 and 10
out of 10 for customer satisfaction. The implication is that the highest levels
of trust and satisfaction are highly related and that there is a clear link
between trust, customer loyalty and recommendation.[1]
We therefore think that the government’s corporate governance reforms
should look to ensure organisations and their boards pay appropriate attention
to customers in their governance structures. Specifically, we think that the
bonus element of remuneration packages for executives should in part be directly
attributable to customer satisfaction and also that organisations should be
required to report on their customer experience measures.
We note the focus in the green paper on ensuring
shareholders can hold executives to account and ensure that pay genuinely
rewards performance that delivers long term value.
However, we also note that the green paper mostly focuses on
the use of financial outputs to judge performance. We think that organisations
should look to wider measures of success including long term measures of
customer satisfaction. Given that customer experience is so important to the
trust and reputation of an organisation, the long term trends in customer
satisfaction give a different perspective on underlying performance and the
possible future direction of financial performance.
We think that use of these measures will help corporate
reporting move away from looking at short-term measures so that performance can
be fully planned for, measured and assessed. Therefore, we think that part of
the bonus
element of remuneration packages for executives should be directly
attributable to the long term trends in the organisation’s customer
satisfaction.
The green paper rightly notes that ‘good companies have a
relentless focus on their customers.’ What is often lacking in many
organisations is a focus by the board on the views and experiences of customers
so that they can properly understand the performance of the organisation and
the success of their strategy to engage their customers.
We do not think there is one simple solution to this and
each organisation must take an approach that best suits its needs but we do
think that better corporate reporting on a basket of customer metrics will be
part of the solution for all organisations. We address the questions and proposals
in the section on strengthening the employee, customer and wider stakeholder
voice in the green paper below. All our responses are in reference to improving
the customer voice.
Q7. How can the way
in which the interests of employees, customers and wider stakeholders are taken
into account at board level in large UK companies be strengthened? Are there
any existing examples of good practice that you would like to draw to our
attention? Which, if any, of the options (or combination of options) described
in the Green Paper would you support? Please explain your reasons.
Option (i): Create stakeholder advisory panels
We think the creation of customer advisory panels could have
value, depending on the nature of the business, but only if it provides a route
for the board to hear the voice of the customer.
An organisation creating such a panel would have to be very
clear about what the panel was to do, how it was to interact with the board and
mechanisms to ensure it was listened to. It would also be important to ensure
it was distinct from other customer consultative groups that had other purposes
- for example to test products. Therefore, clear terms of reference would be
essential to this proposal. We suggest that the key areas which a stakeholder
advisory panel could focus on are professionalism, quality and efficiency, ease
of doing business, problem solving, and timeliness.
Option (ii): Designate existing non-executive directors
to ensure that the voices of key interested groups, especially that of
employees, is being heard at board level
We do not support the proposal of appointing a designated
non-executive director to represent customers. We think this would be merely
tokenistic and might lead other non-executive directors to pay less attention
to this fundamental group. All non-executive directors need to be considering
the needs of the customer. Service excellence risks failure if it is regarded
as the domain of one individual, team or department and all organisations
should be cultivating the idea that service is everyone’s responsibility.
We do, however, think that as part of ensuring there is a
balance of experiences across the non-executive directors there is value in
ensuring some have relevant customer experience or understanding. For example,
this requirement could be included in some job descriptions.
We also think organisations should consider the development
needs of non-executive directors to ensure that they can effectively understand
the customer base of the organisation and their needs.
Option (iii): Appoint individual stakeholder
representatives to company boards
We do not support the proposal of appointing individual customer
representatives to company boards. Similarly to above in Option (ii), we think
this would be merely tokenistic but it might also lead to an organisation to
focus on one group of customers as represented by one individual rather than
trying to better understand the diversity of customers they have and their
needs.
Option (iv): Strengthening reporting requirements related
to stakeholder engagement
We strongly support strengthening reporting requirements to
more explicitly specify that organisations must report on customer experience
measures.
Ensuring boards understand the needs of their customers and
are striving to improve customer satisfaction is, as noted above, an essential
component of improving trust in business. However, the key to success lies in
how any changes are delivered in a sustainable manner over the long-term. Too
many organisations look at short-term results, with relentless attention on
quarterly reporting, and reform should therefore focus on the key measures
which drive long-term success. Overall a balanced approach to reporting is
needed but it should include customer experience as a vital measure of business
performance.
Therefore, we suggest that in order to ensure boards are
focused on understanding their customers and looking at a broad range of
measures that indicate long term performance, all organisations should report
on their customer satisfaction metrics. Boards and shareholders should be able
to regularly review a report on an organisations customer satisfaction: how
they have measured it, what the results are, what the impact is and what will
be done as a result. We suggest that the key aspects of service excellence that
should be reported on are professionalism, quality and efficiency, ease of
doing business, problem solving, and timeliness.
In addition, reports should provide context to customer
service measures by also referring to benchmarks for customer satisfaction both
in the same sector and across all sectors.
8. Which type of
company do you think should be the focus for any steps to strengthen the
stakeholder voice? Should there be an employee number or other size threshold?
We think that all organisations can benefit from a greater
focus on their customers at board level. However, we do not think the additional
requirements should be too burdensome, especially on smaller organisations, and
therefore would support consideration being given to applying a size threshold
to the changes.
9. How should reform
be taken forward? Should a legislative, code-based or voluntary approach be
used to drive change? Please explain your reasons, including any evidence on likely
costs and benefits.
We think the most appropriate way to take this reform
forward would be for the Financial Reporting Council to update the Corporate
Governance Code to set in place the principle that organisations should report
on customer experience measures and that it is the responsibility of boards to
examine them.
When considering changes to the Corporate Governance Code it
will be important to ensure that requirements focus on what is important to
customers and not simply on what data is easy for organisations to collect and
report on. We think that leaders should be free to run their organisation but
this should be within the context of operating against measures that customers
believe are important and periodically reviewed to ensure they remain relevant
and robust.
Therefore, the Financial Reporting Council should set out guidance that best practice would be for there to be basket of measures and that reports would examine both the quantitative data and the qualitative feedback from customers.
[1]
The Institute of Customer Service, UK
Customer Satisfaction Index - The state of customer satisfaction in the UK
(January 2017), p7
