Raising That Bar: Corporate Governance
Britain is ending a turbulent and frustrating year around its referendum decision to exit the European Union on a good note when it comes to corporate governance, in which it leads the world.
Men in Britain might be playing up achievements in appointing women to positions of power, responsibility and leadership in business boardrooms and beyond, but most women will tell you (at least privately), that they think very little has changed in terms of the barriers to gender diversity.
The Patisserie Valerie saga, covered in the last Governance Watch, is the story that just keeps on giving on corporate governance.
The Chief and CFO had “second helpings of shares despite no explanation from the chain” reported the Financial Times, following up with a report about £2.9m made from bonus share schemes, and then the company’s admission that it had awarded these bonuses without informing shareholders.
It has been only a week since first media reports on the goings-on at Patisserie Valerie, which said it had discovered "significant, and potentially fraudulent, accounting irregularities" and a £1 million unpaid tax bill. We were told: "The board has now reached the conclusion that there is a material shortfall between the reported financial status and the current financial status of the business." It thrust Chairman Luke Johnson, CEO Paul May, Finance Director Chris Marsh and auditors Grant Thornton into the spotlight.
The uncertainty around Brexit has resulted in heightened media scrutiny of contrasting comments about what might happen to regulation in order to keep Britain “competitive.”
This is the new mantra, aimed at British business and being chanted at it from all directions: ‘Action, Not Words’ (as noted in the last Governance Watch) when it comes to gender progression, ethnic representation and inclusion.
Diversity and inclusion are essential for economic growth in a multi-cultural society. Many of Britain’s businesses are still struggling with this basic truth, trying to play catch-up with the urgency of the issue by shrouding it in definitions, and re-definitions. Should we call it diversity or should we call it inclusion? Actually, we need to put the two together with equality of opportunity via structural change, in the pursuit of better corporate governance and productive, responsible businesses.
As we approach the end of a summer of discontent in the UK, business confidence is at its lowest in 2018, according to a survey by the Institute of Directors (IOD). The risks of a no-deal Brexit range from the impact on the NHS and the entire pharmaceutical industry to implications for more than €100 bn of European bank debt issued under English law. A ‘no-deal’ impact paper on financial services is among those listed to be published on Thursday.
The consultation period for the independent review led by Sir John Kingman into the Financial Reporting Council (FRC), the UK’s accounting regulator and corporate governance watchdog, has just closed. It is intended to help ensure that the FRC’s role and powers are fit for the future and has come after years of accountancy in the media headlines for all the wrong reasons.
The failure of many FTSE 100 businesses to capture and disclose key workforce data is providing an incomplete picture of key business indicators, according to research just out from the CIPD, the professional body for HR and people development. It has looked at how workforce reporting has changed over the last five years and explores how transparent organisations are being about risks and opportunities relating to the workforce.
There is irony in the timing of a £500,000 fine levied on Facebook today by the UK Information Commissioner’s Office (ICO) for two breaches of the Data Protection Act in the scandal involving Cambridge Analytica. The breaches occurred before the latest European General Data Protection (GDPR) came into effect in May, therefore the £500,000 cap is one set by the UK’s Data Protection Act 1998.
In the current debate in the UK around how to achieve better corporate governance at a challenging time and amid changing business and workplace models in the face of technological transformation, there is a concept that is returning to the forefront - ‘social value.’ This week the UK government returned to the Social Value Act of 2013, extending its requirements in central government to ensure all major procurements explicitly evaluate social value where appropriate, rather than just ‘consider’ it. It comes after the Carillion collapse, which offers examples of the failure of governance on every level.
It is clearer than ever that for change to take place on gender equality, we need to have women in leadership positions. Nicky Morgan, the Conservative MP for Loughborough and the first female chair of the Commons Treasury select committee, made her astonishment at the gender pay gap in financial services public in an opinion piece in The Guardian, when she outlined next steps for the Women in Finance inquiry. Now we have its report, which finds ‘alpha male culture’ to be the main reason women don’t want to work in senior management in this industry.
It’s a recurring theme, and one that needs urgently to be addressed to resolve the many issues around better corporate governance in the United Kingdom. To even attempt to talk about ‘restoring trust in business’ without doing that appears to demonstrate deep underlying commitment to the maintenance of the status quo.
There’s a limit, surely, to how often you can plead an exception to the rule when assessing whether something is fit for purpose. When the ‘rule’: in this case, ‘best practice’ in the running a UK listed business adhering to highly esteemed standards of corporate governance, appears to have been ignored more than once within a few years, it’s time to re-think the components of that best practice.
The accuracy of the numbers in company reports lies at the heart of the corporate governance of any business. Institutional investors and shareholders burnt by unexpected company revelations will have welcomed the news that the UK government has just launched an independent review of the accountancy watchdog the Financial Reporting Council (FRC), to be completed by the end of the year.
It was quite dramatic in the way it was reported in the UK media, but it came as no surprise. As the midnight deadline – set eight years after the law was tabled to compel companies across the country to reveal the extent of the difference between what men and women are paid – came and went, we learnt that women are paid a median hourly rate that is on average 9.7% less than that given to male colleagues.
It is a little difficult to consider something to be a ‘radical’ idea when it was first proposed seven years ago, in the immediate shadow of the financial crisis – to no avail. A snapshot of business media headlines cast a light on some of the complexities as well as the powerful forces at work that can prevent truly radical ideas from becoming reality.