Ending 2019
As 2019 moves towards a close, there remain many questions as to where we are in the United Kingdom when it comes to redefining and living up to our standards of corporate governance, closely watched by the rest of the world. In the wake of a general election yielding a thumping Conservative majority, Prime Minister Boris Johnson has much to do in the weeks and months ahead.
News of his victory and the ensuing market rally “added £33bn to UK shares” reported The Telegraph in its coverage right after the election. Sterling rallied as the markets caught a whiff of the end of years of uncertainty after the 2016 EU referendum vote. But, as news came that the UK government is to add a new clause to the Brexit bill to rule out any extension to the transition period beyond the end of next year, sterling fell. Uncertainty is not yet over, and there are long-term agreements yet to come around immigration, tariffs and more that affects everyday business decisions. There is also the need to stay attuned to corporate governance.
The Prime Minister’s commitment to ‘get Brexit done’ is matched only by the party’s determination to ‘improve the quality of life’ for the everyday person on the street across the country- many of whom were Labour voters who voted Conservative for the first time.
But many of the people who have now shifted their vote around allegiance on the delivery of Brexit are also likely to be those who have been ill-served by the failings of corporate governance working to plan in many businesses.
Because such a failure can lead to many things. At worst, it can result in corporate failure, to a loss of jobs, livelihood and hope. At best, wilfully unaware ‘governance’ can harbour a toxic working culture and a growing sense of ‘us and them’ when it comes to pay. Changing business models, the rise of the gig economy and any neglect of workers’ rights also may not bode well for the seemingly endemic problem of British productivity.
Under Prime Minister Theresa May, a Conservative government made many pledges around corporate governance, but early proposals on reining in executive pay and rethinking boardroom values did not translate into action.
With change in the air, it is apparent that any commitment to a renewed impetus for ‘best in class’ corporate governance on the world stage will have to come together as in the past around both legislation and regulation. Governance Watch flags just a few of the issues waiting their turn to be addressed, with implications for all working people in the UK.
Regulation
A hotly awaited announcement will be that of the next governor of the Bank of England. Mark Carney, the incumbent, is to vacate the post at the end of January 2020. Andrew Bailey, the CEO of the Financial Conduct Authority (FCA) has long been seen as a serious contender to succeed Mr Carney.
But “questions have been raised about the effectiveness of the FCA under Mr Bailey’s leadership after a series of corporate scandals including the collapse of investment funds run by Neil Woodford, the one-time star stock picker” reported the FT on the shortlist. The regulator has also, under Mr Bailey’s watch, been termed “supine” and “toothless”, more concerned with protecting a bank –RBS – rather than ‘ordinary people” according to the RBS GRG Business Action Group in 2018.
Accounting/Ethics
Each business failure in recent years in the UK has been unique, but they have all had their share of questions about their accounting. It has been a busy time for the Financial Reporting Council (FRC), the accounting regulator and corporate governance watchdog, which has now itself been re-invented. Managing the provision and standards of audit is an ongoing high-priority for corporate governance. A major revision to its ethical standard and revised auditing standards from the FRC have just been published.
In response to investor demand, the International Accounting Standards Board (IASB) has proposed improvements to the way information is communicated in the financial statements, with a focus on financial performance. Companies would be required to provide three new profit subtotals, including ‘operating profit’, and a video explaining the proposals is here.
The news stories about accounting, fraud and corporate failure have not been drowned out by Brexit. Serco, one of the UK’s biggest outsourcing companies with a stock market value of around £1.8bn, provides housing for asylum seekers, immigration services, hospital cleaning, defence and transport. Six years ago, an electronic tagging scandal plunged it and rival G4S into financial crisis, starting a debate about the UK government’s use of outsourcing. This week the UK’s Serious Fraud Office charged two former directors with fraud and false accounting.
Gender Equality/Diversity
The UK has fallen six places down the global rankings for gender equality, according to a sobering report on the global gender gap just out from the World Economic Forum (WEF). From being the 15th most equal nation in the world, the UK is now the 21st, despite successive prime ministers pledging to take decisive action to tackle gender imbalance.
When it comes to women and progression in the boardrooms and senior positions at our biggest companies, as a country we are in danger of stalling, as the last post here stated. On the broader issue of ethnic diversity, there has been no progress and the image on diversity is static.
A report just out from MSCI, the index provider, reveals that companies boosting the number of women on their boards have hired from a small pool of candidates. “This finding may imply that despite the broad availability of educated and experienced female professionals, some companies have continued to rely on a limited pool of candidates,” it said.
Climate Risk/Investors
Concerns around a climate emergency escalate as images flood across our information screens of blazing bush fires and arctic warming. It is gaining in importance as an issue for the general public across generations, as well-attended public protests have made clear. For their part, investors are responding by asking for more transparency from business on environmental disclosure.
The outgoing governor of the Bank of England, Mark Carney, has been appointed as special envoy to the United Nations for climate action and finance. He has in the recent past warned business it has two years to agree rules for reporting climate risks before global regulators come up with their own, which would be compulsory.
As the first G20 country to commit to a goal to cut its emissions to net zero by 2050, the UK made a mark, albeit one without much detail. The EU has just published its Green Deal. The disappointment of COP25, which failed to reach agreement on international carbon trading, will now move the spotlight to Glasgow in 2020, with the UK hosting.
Thank you for reading in 2019, and there is more on some of these issues on my blog, Board Talk.
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