Corporate governance in general, and not just within financial institutions, “has let us down”, says the Chair of ACCA’s (the Association of Chartered Certified Accountants) Corporate Governance Committee – Professor Andrew Chambers – in a submission to the Financial Reporting Council (FRC).
Responding to the FRC’s Review of the Effectiveness of the Combined Code, ACCA says that while various failures have been blamed for the current economic crisis, corporate governance failures are chief among them.
“Learning lessons from the past is crucial to making strides forward” says Professor Chambers in ACCA’s submission to the Review: “Fine tuning of the current system will not resolve the problems, since it has not done so in the past. For instance, concerns about executive remuneration have continued to grow despite the succession of measures adopted on that matter since Greenbury in 1985.”
ACCA is also concerned about the role of Non Executive Directors (NEDs).
Professor Chambers adds: “A common feature of corporate governance debacles has been that boards, especially their non-executive directors, have been taken by surprise by events. ACCA believes that this is not unconnected to the ability of, and tendency for, top executives to control the flow of information to the board. Many boards seem to operate in a partial assurance vacuum.”
“Central to our 14 page response to the FRC’s Review is the need for the Combined Code to be strengthened in its definition of the requisite training, qualifications, time commitment and conduct of NEDs. If we are to be able to rely on NEDs in the future, they need to be well trained and given proper support.”
ACCA also says there is now an urgent need for the main pillars of UK corporate governance – the FRC, the Financial Services Authority (FSA), Shareholder Bodies, Professional Advisers and Company Law regulation – to determine collectively a better route forward.
The role of shareholders and the bodies that represent them cannot be relied upon either to enforce high standards of corporate governance by companies, since they are not sufficiently organised or incentivised to challenge boards and hold them to account. Furthermore, shareholders themselves often encourage companies to take excessive risks. Therefore, regulation must assume responsibility for ensuring the effective adoption of corporate governance rules.
ACCA considers that corporate governance guidance must in future be applied and enforced much more robustly. It recommends that a project is undertaken, either by the FRC or the Department for Business, Enterprise and Regulatory Reform (BERR), to identify which of the discretionary provisions of the Code should be made mandatory through the listing rules, or by regulation, or by law – with a broader remit than just for listed companies.
Professor Chambers concludes: “Regulation of corporate governance in the UK is currently so light touch as to have very little impact at all; there is a very clear need for more robust regulation in this area.”