Governance Watch - Issue 21

By Dina Medland in London


The demands of rapid technological transformation are casting fresh light on the urgent need for every business to be able to ‘join the dots’ into a clear line on how it functions on multiple fronts through its own corporate governance. Since the last Governance Watch, the media headlines have offered rich pickings for making important connections: between boardroom composition and cybersecurity, between executive pay, performance targets and corporate culture, between short-term value and long-term gain.

When Japan’s third-largest steel maker Kobe Steel last week blamed at least a decade of data fabrication on a focus on profit and a lack of quality controls amid a “severe management environment”, it should have made European business leaders sit up and take notice. Japans Kobe Steel blames fake data scandal on corporate culture read the headline in the Financial Times. Its story pointed out that the language used in the company’s report used “very similar language to that used when Toshiba attempted to explain seven years of fraudulent accounting.” 

Meanwhile in Europe, a survey on Board Leadership and Corporate Culture of 435 board members has just found that 63% either work on boards that exclude culture from formal risk considerations, or fail to routinely assess the risks associated with their own corporate cultures. This is despite the increased focus on corporate culture by the UK regulator, the Financial Reporting Council (FRC) – which will release its review of the UK Corporate Governance Code, expected to be “shorter and sharper” to quote its Chair Sir Win Bischoff - for consultation by the end of this month. 

At events in Oslo earlier this week focusing on the need to be ready for the demands facing the company boards of the future, Sir Win also said: “Culture has become more of a winged concept than it was five years ago: it’s not like a budget – it looks to the long-term.”

Equifax, the US credit reporting company now famous for one of the most serious data breaches in corporate history, hit the headlines again last week when it released its first results since the scandal. (It is also being investigated over the data breach by the UK’s Financial Conduct Authority.) An FT story is reported here with no paywall under the headline that says it all : Equifax says bye-bye to bonuses and buybacks.

These are unintended consequences of being ill-prepared for the demands of technological transformation, about which there is more on the UK perspective in my blog Board Talk. Equifax was worse than ‘ill-prepared’ - it was negligent in that it failed to fix a software flaw despite a warning from the US government. Hence the unexpected change in remuneration and corporate share buyback plans, as executives warn investors about litigation bills and regulatory fines. 

I am reminded of a piece I wrote in 2014 on Forbes on Deutsche Bank: This Company Is Not A Gigantic Legal Department With a Bank Attached.’   

There are no shortages of examples in the media headlines of the business challenges of digital transformation. Inevitably, they take us full circle – to board composition, succession planning, and board evaluation.

I was asked by the FRC to contribute to a series of blogs around corporate governance themed as ‘25 years after Cadbury’ to be featured on its website, and I chose board composition. Pleasingly, if you put my name into the search engine on the new FRC website, you will find it. It is called Addressing Board Composition In A Changing World. 

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