Kwasi Kwarteng White Paper proposals examined
ONCE the financial elephant has run away from the company accounts circus, it is already way too late to prevent meaningful damage. Clearly it is important to avoid shareholders, customers, patrons and the wider community bearing the burden of these corporate governance failures and, instead, to hold company directors responsible.
Though Kwasi Kwarteng’s White Paper proposals laudably include “Malus and clawback clauses” designed to penalise companies that fail or get embroiled in scandals as well as signalling a welcome review of the audit and accounting regulatory and supervisory body. Nevertheless, toothless enforcement against the company directors responsible still looks likely to remain the order of the day and plague the future nearly as much as it does the present.
With Treasury bookshelves already heaving with official Audit Reports and Corporate Governance Reviews aplenty properly functioning audit committees as well as the enforcement of existing substantial guardrails and safe-guards that already appear on the companies acts statute book and the Combined Code would be a both quicker and more effective solution than the delay of further consultation. Company boards constituted obeying basic good governance principles and practices with properly trained and effective independent non-executive directors are much more likely to avoid financial elephants leaving the circus to run amok and trample our good governance forests.
If Mr Kwarteng stopped holding his telescope the wrong way round, he might instead decide to insist upon greater enforcement of existing powers and legislation. It is all too easy for less diligent companies to over pay executives, gift egregious dividend payments or file erroneous annual accounts at Companies House with little fear of examination or prosecution. Indeed, every time a company director is remanded in custody for accounting irregularities, in the Square Mile they build the Eighth Wonder of the World.
I hold no mandate for accounting firms of any size or stripe, consulting over re-arranging the organisational structure and seating plans of the present accounting regulator and a focus on financial reporting issues via this White Paper focusses on the symptoms of the problems and ignores so many other very important corporate governance issues. We do not need more rules downstream especially since we already have a good UK Corporate Governance Code on the statute book to govern and enforce executive boardroom behaviour and practice.
I would also question the value of yet more cumbersome and bureaucratic processes which just result in more stifling box ticking red tape and do nothing to help the UK become an even more attractive location for international business. Despite Kwasi Kwarteng’s best intentions going down this White Paper route, even if he achieves his stated aims the likeliest result is going to be grand-sounding after the event gentle taps on the wrists with a few extra boxes to tick rather than any root and branch reform of corporate governance behaviour of boards of directors.
It should go without noting – but I will do so again – that independent directors have a vital stewardship role to play in companies but also wider society. We have a good UK Corporate Governance Code but what we need isn’t another White Paper but a focus on improving the behaviour of boards of directors. There are numerous long-standing issues to fully address that, if we did so, would deliver significant benefits and improvements. These include:
Increased Diversity of Boards
Appointing excellent Chairs
Appointment of well trained and effective Independent Directors
Enforcement of effective board evaluation
The Development of a professional qualification for Company Directors
Enforcement of greater Stakeholder Governance and Engagement
Photo credit: ENDS Report