Governance Watch - Issue 22

By Dina Medland in London


Good corporate governance requires transparency. In South Africa, the latest corporate governance code or King 1V, has put transparency at its heart. By contrast, we talk about transparency in corporate governance in the UK, but we keep coming up against walls of silence. Knocking on such a wall may well reveal that it is, in fact, a door. But it is firmly shut because the powers that be think that it’s “best.” 

The trouble is, a lack of transparency is usually outed in the end, particularly in the new age of digital communication with endless possibilities for eavesdropping and gaining quick access to conversations that have taken place. All the encrypted What’s App conversations in the world do not protect you from a quick iPhone screen shot of that conversation. An already cynical public is beyond being surprised when it comes to trust in business, and almost beyond caring. 

Given that backdrop, let me take you through the recent and ongoing corporate governance shenanigans at the London Stock Exchange. A close look at business media coverage reveals how much of a part the media can play both in questioning, as well as reinforcing, our current standards.

Just over seven days ago, activist investor The Children’s Investment Fund (TCI) called for the UK financial regulators to intervene at the London Stock Exchange Group (LSEG) by appointing a new chairman to end its corporate governance crisis. TCI calls for regulators to intervene at LSE read the headline in the Financial Times, and the facts were reported elsewhere as well. 

By the next day, amid silence from the LSEG and an angry letter from Sir Christopher Hohn (who heads TCI) to LSE Chairman Donald Brydon, media reported a “riot of speculation” as to “just what Xavier Rolet could possibly have done”, setting the tone for another Brexit soap opera in Britain’s business headlines. 

Sir Christopher wanted to know why Mr Rolet had announced in October that he was stepping down at the end of 2018, and he was clearly very unhappy with the Chairman, the board, and the possibility that Mr Rolet was being forced out.  The LSEG issued a statement that it had followed an orderly succession planning process, on which the FCA had been kept informed. Sir Christopher also wanted the Bank of England to intervene. 

Intervention? This is how the media variously reported comments from Mark Carney, Governor of the Bank of England: BOE’s Carney ‘mystified’ by CEO spat at London Stock Exchange and Bank of England chief pushes back on call to resolve LSE row

Reuters Breaking Views published this piece by Peter Thai Larsen on the same day as the last headline mentioned (November 28th), and it began: “The ghost of Fred Goodwin is haunting the boardroom at the London Stock Exchange.”

The FT followed its piece on November 28th with an opinion piece the next day by one of its own journalists: Shareholders can bank on Carney to be the grown-up in the room.

Meanwhile, on November 29th, Xavier Rolet quit as CEO of the LSE, effective immediately. Chairman Donald Brydon is not going to stand for re-election at the AGM in 2019. 

It does not take a genius to deduce that we do not know the whole story. It is important to note this is not just any publicly listed company, when it comes to the importance of its corporate governance.

Mr Carney’s statement in response to TCI said: “We take an interest in this. The clearing operations of the LSE are systemic infrastructure, and incredibly important, not just to the UK but to the global derivatives market.” And of course, there’s Brexit to contend with.

But Sir Christopher is very determined to have an extraordinary shareholder meeting on the exchange’s leadership, nonetheless. At time of writing, TCI is still calling a meeting to vote on removing Mr Brydon immediately, thus prolonging the governance crisis at the exchange.

Does it help that there has been no real transparency in this matter? It is hard to see how that can be. Before I am accused of knifing the FT, this editorial on November 17th - The London Stock Exchange tests good governance  said a great deal that needed saying. 

But on November 29th (the day before Mr Rolet quit with immediate effect) John Gapper wrote an opinion piece in the FT. It began: “It was a bizarre dispute but it was settled in a traditional City of London manner.” I read it, and was appalled.

The point of this column is to flag up the corporate governance issues thrown out by the business media headlines. My point is that sometimes the media – especially the ‘relied upon’ establishment business media helps shape the stories that make the headlines, by reinforcing the status quo. 

I am deeply relieved to find that I am not the only one who feels this way. Here’s an extract from a letter to the FT by Stephen Martin. FT headline: LSE should have let the sunlight do its work. It’s a good headline, says it all – even if you cannot access the entire piece. 

Stephen Martin is Director General of the Institute of Directors. In his letter to the FT he ended: “In retrospect, it would have been better for all concerned if the board of the LSE had engaged in honest dialogue with major investors. If the board were concerned about the leadership style of the CEO — and its impact on corporate culture — it should have been prepared to stand behind that judgment. But by attempting to keep the reality from investors, its strategy has backfired spectacularly, with negative implications for its own credibility. In this matter — as in many other aspects of corporate governance — sunlight is the best disinfectant.”

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