July 28, 2016 Shaking up Corporate Governance
There is a saying that all publicity is good publicity and for those concerned with delivering strong corporate governance it certainly has to be said that there has been plenty of publicity flying around in the last few weeks. Although the Conservative leadership hustings were short lived, Theresa May’s campaign speech highlighted her determination to reform corporate governance through a variety of measures including:
- company boards to include consumer and employee representatives
- executive bonuses to be more aligned with the long-term interests of the company
- binding shareholder votes on executive remuneration
Whilst Theresa May’s comments have to be seen as being made in the light of an election campaign, corporate governance again came to the fore as Parliament’s Business Innovation and Skills Select Committee reported on the results of its investigations into both Sports Direct and BHS. Highlighting the way in which corporate governance in those organisations was affected by ‘dominant leadership,’ the chairman of the Select Committee, Iain Wright, commented on the need for reform, asking “How do we use the rules, and how do we use corporate governance, to make sure that companies are better run in the interests not just of these dominant personalities but for the good of the entire company?”
Whilst there is always room for improvement in any system, the Financial Reporting Council (FRC) has been working hard in recent years to intensify the focus on corporate governance and the role which strong governance has to play in delivering profitability and shareholder returns. From clear & concise reporting and diversity initiatives through to the FRC’s current focus on the role of corporate culture in delivering strong governance; organisations have been encouraged to revisit their boardroom mix, boardroom processes and communications in order to strengthen both governance and investor relationships.
Despite these initiatives there is still more work to be done and this was acknowledged by the FRC in its annual report released on 21 July. Commenting within this report FRC Chairman Sir Winfried Bischoff said that in his experience “embedding a healthy corporate culture, with a focus on respect and good behaviour, is vital to the success of any business and creates an environment on which investors can depend.”