Governance Watch - Issue 35

by Dina Medland in London

Conflict of interest

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.

This week we learnt, here via The Guardian, that KPMG, one of the Big Four accounting firms, has abandoned a longstanding practice of making donations in kind to MPs and political parties by providing researchers to help in formulating policy and legislation. The Guardian story quotes Prem Sikka, a professor of accounting at the University of Sheffield, as saying: “The firms don’t make donations. The money is an investment to secure desirable outcomes.”

An “investment to secure desirable outcomes” is a great description and an excellent phrase that ought to trigger a red alert for anyone interested in ethics and governance.

The very one and the same Prem Sikka, in case you missed it, has been asked to head a review for the Labour Party into the auditing and accounting regime in the UK. It is the opposition party’s response to the Kingman Review into the Financial Reporting Council (FRC), the accounting watchdog. An expert advisory group to help with this review has since been announced.

Can the United Kingdom have a united approach to corporate governance policy without politics? It might be a question worth debating.

‘Magic Circle’

 There was another story in the media headlines this week that adds to the ongoing tale of woe around the Royal Bank of Scotland and some of its activities. Clifford Chance, one of the golden so-called ‘Magic Circle’ law firms, is facing an investigation from the solicitors’ regulator after a complaint that “it overlooked an allegation of fraud during a contentious review of Royal Bank of Scotland’s treatment of thousands of small companies.”

In writing about corporate governance, I have over the past near-decade (see first, now old website) advocated the inclusion of audit and law firms in its overall scrutiny, which is documented by that wonderful thing, the internet. Ideas around that have been explored on my blog Board Talk, in my column under Leadership on Forbes for four years and in paid blogs for the International Bar Association.

There is no such thing as individual responsibility alone, where collaboration is increasingly necessary for a good result (think global supply chains in 2018) and where the flip side of that is collusion. Corporate governance ideals and regulatory ambition need to come to grips with that truth.

It is, however, unfortunate for Britain that it continues to cling to terms such as ‘Magic Circle’ for its best law firms – as today such a term screams of elitism, not much-needed social inclusion.

A circle can be ‘magic’, and it can also (more commonly) be ‘vicious’. If all the UK government’s talk around the need for ‘fairness’ in the country’s economic essence, and its commitment to best corporate governance based on a vision for business and society built on trust is to be made real to the person on the street, these issues will have to be addressed.

The bricklayer at the heart of the Clifford Chance/RBS story is Clive May, @efgbricklayer on Twitter, and a long-time follower of mine there. I have never met the man, but I have heard his story around RBS on the public platform, and also via private communication.

When he told me that the media had listened and the story was out he also said: “I am not afraid of taking on Clifford Chance, because truth is a powerful weapon.” Whatever happens in the end here, that is a powerful takeaway for anyone truly interested in the connection between the consumer and the corporate giant. Because there are hundreds of thousands like him, and they all need to be convinced that it is really better than it looks at the moment from their perspective on corporate governance.

Board conflict

While there is conflict around the perception of top management and boardrooms, there are also many media stories around conflict within boardrooms, some of which leave those of us who are close readers of the business media frankly incredulous.

The latest news around the Stobart Group, an infrastructure and support services business (Yes, another one… this one operates in the biomass energy, aviation and railway maintenance sectors and also has investments in a national property and logistics portfolio) is worth noting. This is a FTSE 250 business – and here is its board – an image, as they say, is worth a thousand words.

“The future of Stobart Group's chairman was cast into doubt this evening, after the company's former chief executive vowed to vote against his re-election at an upcoming annual general meeting” reported The Telegraph, just before the last UK Bank Holiday on Friday.

Just two days ago, Stobart’s broker Cenkos resigned, saying: “We have a longstanding relationship with Andrew Tinkler, and considering Stobart’s current boardroom issues we find our position untenable and have therefore resigned as joint broker.”

It all sounds very emotional, and if you read the detail, it seems very messy indeed despite repeated use of the term ‘strong corporate governance standards’ to justify actions.  And yet – please note – there are no women involved. An argument at the very least for gender diversity in the boardroom?

Women on Boards

But just look at the sentiments held in FFTSE 350 boardrooms, and at explanations from a range of FTSE 350 Chairs and CEOs for not appointing women. These were heard by the team behind the government-backed Hampton-Alexander Review, and released today. The government headline?  Revealed: The worst explanations for not appointing women to FTSE company boards.

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