More responsibility, less regulation

It is extremely encouraging to see the business section of the new coalition
government’s policy document focusing on corporate accountability and
transparency.

This focus sits extremely well alongside the government’s other programme to
end the culture of tick-box regulation and to target attention on high-risk
organisations through co-regulation and improving professional standards. This
has to be the right way to go.

For too long, politicians and regulators have seen increased regulation as a
means of protecting the public and outlawing bad corporate behaviour.

Sadly, these actions have often just created more process and mindless
compliance – if you’ve followed the rules, you can’t be criticised.

In so many situations the majority have been burdened with costs due to the
actions of a few irresponsible outliers. Encouragingly, there is a sense that
the new administration recognises that economic success and social cohesion are
more likely to be fostered if we can create a better model that delivers
behavioural change and makes people think for themselves and take personal
responsibility.

This combination of business accountability and better reporting should be
welcomed by the business community. If we are able to create a regulatory model
for business that focuses on the substance rather than the form, we could, over
time, put the UK economy in a position of real competitive advantage. Think of
the size of the potential dividend created from stripping out the billions of
pounds wasted on unnecessary red tape and form filling and the opportunity to
redirect under-utilised talent towards value creating and innovation-type
activities.

However, for this to happen the corporate sector will need to step up to the
plate, particularly in the way it acts and reports. Taking a compliance approach
– doing the bear minimum – will not suffice. CEOs and their boards will need to
take the lead and drive changes in reporting that recognise an increasingly
complex business environment and a new form of accountability to the beneficial
owners and stakeholders.

While the coalition is talking about reinstating the Operating and Financial
Review (OFR) to ensure that directors’ social and environmental duties have been
addressed, this should not be seen as the step change needed. Some would argue
that the enhanced business review has already gone most of the way to
reinstating the original OFR. Where the debate is already moving is the need to
create a truly integrated reporting model. It is a model where the strategic
implications, business model challenges, risks and behavioural issues associated
with climate change, resource usage, waste and community impacts are presented
as part of mainstream business thinking and reporting, not as a bolt-on
afterthought.

This is the fertile ground where government intervention is needed. It should
create a legal environment which facilitates increased transparency on what
matters, where reporting models can be innovated and where chairmen, CEOs and
boards are not penalised for trying to do the right thing.

David Phillips is senior corporate reporting partner at
PricewaterhouseCoopers LLP

Further reading:

pwc.blogs.com/corporatereporting