Change and Evolution
Beware the Ides of March, as they can prove to be treacherous. At a time when Britain appears ever more deeply mired in political stasis over the Brexit vote, we have also seen a steady roll-out of government reforms to improve corporate governance and the running of our businesses. The aim is to restore trust in business and its place in society, although ironically the Edelman Trust Barometer of 2019 shows that the British public trusts business far more than it trusts the government – as mentioned in the last Governance Watch.
If these reforms are now seen not to deliver real change, the threads of that trust will scatter on the chilly wind.
Change as evolution arrived in the government announcement that the UK’s audit regime is to be transformed with a new regulator. Following the recommendations of the Kingman Review last year on the Financial Reporting Council (FRC), “a new audit regulator with a clear and precise sense of purpose” with powers to issue higher penalties and investigate company directors is to be created, announced Business Secretary Greg Clark.
The new Audit, Reporting and Governance Authority (ARGA) will have the power to make direct changes to accounts rather than having to apply to a court to do so, and to use a wider range of sanctions in case of corporate failure. While the FRC has been limited in its ability to investigate company directors by whether or not they were registered with an accounting body, the new regulator will have no such constraints. Conflict of interest concerns of the past are being addressed, and there is to be a further consultation on whether to adopt further changes reflecting those made in the United States, requiring company directors to state that accounts do not contain misrepresentations or untrue statements. Accompanied by harsh penalties such as heavy fines or even prison terms for transgression, such changes would be a move towards real transparency and accountability.
“This new body will build on our status as a great place to do business and will form an important part of strengthened public trust in businesses and the regulations that govern them” said Mr Clark. ARGA will have new powers to require rapid explanations from companies and in the most serious cases, to publish a report about the company’s conduct and management. It is also to have “a new, diverse board and strong leadership to change the culture and rebuild respect of those it regulates” he said.
In order to achieve that, as the recruitment for a new Chair and Deputy Chair for the new watchdog begins, one can only hope there will be a strong – and an imaginative – focus on female candidates.
Women In Chairman Role
We have changed the language, but not much else when it comes to women in the Chairman role in the UK’s publicly listed businesses. Using the slightly awkward ‘Chair’ epithet - which I personally dislike because it makes me feel like it’s an invitation for someone to sit on you – we think we have taken any specific gender bias out of the role altogether. Given the lack of diversity in almost all its senses in this role in the FTSE350, it’s time for a step change in corporate imagination and recruitment.
As she says: “There are excellent male Chairman leading some of our great companies, large and small. There are however, too many who are stuck in a paradigm of the ‘old way’ who pay scant attention to the driving forces for increased accountability of Boards to their stakeholder beyond the shareholders, who seek to ‘dodge’ and minimise the impact of the ‘Codes’ and these broader pressures in a narrow myopic interpretation of their role. The impending demise and re-boot of the FRC (Financial Reporting Council), is a testament to their lacklustre engagement with the new future landscape of Boards.”
The argument that there is an acute shortage of competent women is, and always has been, as she suggests, “facile.” The UK has come a long way on getting women into non-executive director roles, but it has taken a decade of far more effort than should have been needed to get to where we are today, if you are seriously considering only demand and supply. Part of the problem in the UK is the notion of privileged positions which women are grateful to access, rather than earned positions, to which they have a right. Gratitude reinforces existing power structures, while appointments made on competence just create better business.
That’s quite a mouthful. But I have relentlessly voiced strong opinions around the drive for women on boards since 2011, on my blog Board Talk on my earlier website. Helen quotes INSEAD extensively, and I covered their excellent work on the evolving chairman role last year on my latest platform. Although this column is sponsored, I have editorial control. I have worked with Helen in the past but she has never had prior knowledge of my posts on Board Talk prior to publication.
My recent post FTSE 350: A Golden Opportunity To Focus On Gender Diversity And The Role Of The Chair was inspired by a press release. But I have now agreed to be on the steering committee for an initiative she is leading to increase the number of women in the Chair role at the top of FTSE businesses.
There are many strong female – and male – voices in the UK united in frustration behind the urgent need for more diversity of every sort at the top of our businesses. In the spirit of 2019, it is time for better advocacy and collaboration.
Regulation and Language
One of the interesting things about change is the way in which we use language to convey ideas to bring it about. Although the concept of ‘unconscious bias’ has been very useful in training individuals to become aware of pre-conceived notions and prejudices, it has also served to derail the gender progression argument. Businesses have often thrown money into training programmes, and left it there. But middle management continues to be where “diversity goes to die”, as noted on Twitter.
Yesterday the Financial Conduct Authority (FCA) fined The Carphone Warehouse over £29m for the “mis-selling” of insurance. The Carphone Warehouse sales staff were “trained in ‘spin selling’, where the focus was on persuading customers to purchase Geek Squad and on selling the features of the product. No training was provided on how to respond when customers gave answers indicating the policy may not be appropriate” said the FCA.
“Mis-selling” seems a mild description of such corporate practice, with the implication that it’s easily done, inadvertently, and without a conscious decision.
We have also recently heard “misspoke” from more than one of our politicians, backtracking on a previous comment. It seems to Governance Watch that it’s dangerously easy to muddy the ethical waters with what can be an imprecise use of language. All these details contribute to public perception, which makes its own decisions when it comes to trust.