Insider Business Club: corporate governance

Is corporate governance now under control?

Anthony Carey, partner at Mazars and project director of the original
Turnbull Report

Corporate governance is an ongoing task. What you hope is that we’ve got a
reasonably steady architecture now, but there is continuing work to do on
implementation and continually learning. As with many areas of business, the
task is never finished, but one hopes that the architecture is going to become
more stable now.

If you define what corporate governance is about, it’s about entrepreneurship
and risk management which is really about running your business, so that task is
an ongoing one.

It’s important that companies do actually see it as good governance that
benefits business, after all there is a fair bit of evidence to say that good
governance does bring benefits to business. The anxiety about box ticking is one
of those anxieties that won’t go away, but I certainly think the Financial
Reporting Council has tried to make clear that it’s about principles not about
box ticking ­ that if a company genuinely feels that it is not appropriate to
apply a provision in the code that it should have the confidence to say here’s
the reason why we don’t think it’s relevant.

The anxieties about box ticking particularly come from one or two
organisations that seem to try to get everything quantified, rather than
actually look at the narrative around issues. I detect that’s less of an anxiety
than was the case two or three years ago in major companies but I think it won’t
ever fully go away.

In terms of what’s in the pipeline, there is the FRC’s review of the combined
code at the moment. Judging by the questions asked in the consultation, the
early signs are that that probably won’t lead to dramatic change. On top of
that, from time to time various pieces come over from Europe on corporate
governance statements on the need for committees etc.

Why not have a policy of comply and explain when it comes to

Paul Moxey, head of corporate governance and risk management,

Rules are what you comply with. However with that comes the temptation for
people to find their way of complying with the rules but maybe not with the
substance or the intention of the rule. That is the real danger and we saw that
with Enron and so on. Luckily we have avoided that to a significant extent in
this country since the Cadbury committee reported and, fingers crossed, that
will continue.

The explanation is important and I would say that in terms of our combined
code we have a set of principles and we have a set of provisions. With the
principles it’s a case of apply. Companies are required under listing rules to
apply the principles and then to state how they apply them. With the provisions,
companies either have to comply or explain why they are not.

The principles are probably more important than the provisions.
We are beginning to see a maturing of the more informed companies and the more
informed investors are beginning to focus more on how companies are applying
their principles.

There was a great danger after Enron and Sarbanes-Oxley that we were going to
proceed down a compliance route. Thank goodness we didn’t. But there is a
perception among many people that corporate governance is a compliance thing.

Corporate governance is a performance thing and culture. Without the right
culture, without the right attitude then the compliance really doesn’t count for
very much. So the emphasis has to be more on the principles where possible, and
I think we have got the balance generally about right in this country, although
there are pockets of people who think it is more about compliance and about
performance, but elsewhere in the world I can’t be anywhere near as comfortable.

Chaired by Damian Wild

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