BusinessCompany NewsFDs urge tougher line on Higgs

FDs urge tougher line on Higgs

Support is growing for a switch to US-style enforcement of corporate governance rules after Accountancy Age research revealed that nearly half of FDs are not confident in the combined code on corporate governance.

Link: Higgs report

The results were disclosed less than a month after the combined code and the Higgs recommendations became effective on 1 November. It will undermine the view of those who believe that the new code puts an end to concerns about corporate governance in the UK.

FDs said that the only way to make the code effective in the long term was to give it legal teeth. This would mean imposing penalties on companies not complying, as in the US, instead of the UK’s current voluntary explain or comply framework.

Of the 118 FDs who participated in the Accountancy Age survey, some 48% said that they were not confident in the long-term effectiveness of the UK’s current approach.

One FD said: ‘I believe a firm stance must be taken by authorities to support the Higgs report – that means backing it up with stiff penalties for those who flout the rules.’

Some 82% of the FDs said executives were to blame for recent governance failures, while 12% pointed the finger squarely at auditors.

A recent study by Grant Thornton found that more than half of FTSE350 companies were neither fully compliant, nor had they declared their non-compliance.

Simon Lowe, head of Grant Thornton’s risk management services, said that US-style penalties were gaining favour in the European Union. He feared that small companies would pay dearly under a US-style regime.

‘It would be like taking a hammer to crack a nut. The reporting situation for a FTSE100 company with multinational operations can be far different to a smaller company with just a single UK operation,’ he said.

The present UK framework allows companies to justify themselves, if they choose not to apply a certain part of the code.

A spokesman for ICAEW said: ‘The new system has to prove itself in practice, but we still have faith in it doing so.’

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