June 8, 2016 An absence of governance
When we talk about ‘comply or explain’ or about the twelve key guidelines which represent corporate governance best practice; the underlying assumption is that those who accept the responsibility of leading an organisation, whatever its nature, will act in the best interests of the organisation, its employees, investors and customers. Sadly, whilst there are many external reasons why corporations may fail, far too often it comes down to an absence of effective governance or leadership.
For employees who discovered recently that no buyer can be found for BHS, the closure of this once great company is a personal tragedy. Whether its demise could have been prevented is a matter for ongoing enquiries, with a House of Commons select committee hearing underway and further investigation being considered by the Pensions Regulator and FRC. However, initial indications are that governance failings may have played their part.
On the third of June the IoD Director General, Simon Walker, wrote an open letter to Frank Field MP and Iain Wright MP, Chairs of the Commons Select Committees on Work and Pensions and Business respectively, commending them for their enquiry into the failure of BHS. In his letter he highlighted the FRC’s view that despite what appears to be evidence of governance failings, individual directors cannot be looked at under the FRC’s disciplinary scheme.
Commenting that lessons need to be learnt, Mr Walker concluded that “The corporate governance at Arcadia, and the collective failure of regulators, trustees, and advisors, represents a blight on the reputation of British business.” Simon Walker’s evident viewpoint in respect of governance failings have been echoed in the select committee hearings by Ian Wright MP when he commented that it was clear “effective corporate governance in BHS was almost entirely absent.”
Corporate governance isn’t just some nice tick box exercise which is designed to make the annual report look good. Nor is it a set of meaningless words which look great on the boardroom wall but are ignored in practice. Strong corporate governance is about vision and strategy and risk management and accountability. It is about delivering growth for the company, jobs for employees, returns for investors and great products and services for customers.
When effective governance is absent then it is hardly surprising that a company loses direction, customers drift away and profitability vanishes. As Simon Walker said in his letter, hopefully through investigating the demise of BHS “we can ensure that appropriate lessons are learnt by not just those involved, but by the business community at large.”